United Parcel Service, Inc. (UPS) Dividend Stock Analysis

United Parcel Service, Inc. (UPS) Dividend Stock Analysis

Linked here is a detailed quantitative analysis of United Parcel Service, Inc. (UPS). Below are some highlights from the above linked analysis:

Company Description: United Parcel Service, Inc. is the world’s largest express delivery company, UPS has established itself as a facilitator of e-commerce.

Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

UPS is trading at a discount to only 3.) above. When also considering the NPV MMA Differential, the stock is trading at a 33.5% premium to its calculated fair value of $141.22. UPS did not earn any Stars in this section.

Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%

UPS earned no Stars in this section. The company has paid a cash dividend to shareholders every year since 2000 and has increased its dividend payments for 14 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
2. Years to > MMA

The NPV MMA Diff. of the $868 is below the $2,100 target I look for in a stock that has increased dividends as long as UPS has. If UPS grows its dividend at 6.6% per year, it will take 2 years to equal a MMA yielding an estimated 20-year average rate of 3.75%. UPS earned a check for the Key Metric ‘Years to >MMA’ since its 2 years is less than the 5 year target.

Peers: The company’s peer group includes: FedEx Corporation (FDX) with a 2.2% yield, Deutsche Post AG (DPSGY) with a 4.2% yield and Air T, Inc. (AIRT) with a 0.0%.

Conclusion: UPS did not earn any Stars in the Fair Value section, did not earn any Stars in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of zero Star. This quantitatively ranks UPS as a 0-Star Avoid stock.

Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $136.92 before UPS’s NPV MMA Differential increased to the $2,100 minimum that I look for in a stock with 14 years of consecutive dividend increases. At that price the stock would yield 4.7%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $2,100 NPV MMA Differential, the calculated rate is 9.6%. This dividend growth rate is higher than the 6.6% used in this analysis, thus providing no margin of safety. UPS has a risk rating of 2.25 which classifies it as a Medium risk stock.

UPS is geographically diversified with an expanding revenue base and a track record of growing its earnings. Its Free Cash Flow Payout of 61% (down from 493%) is a vast improvement and is now nearly at an acceptable level, and it Debt To Total Capital of 54% (down from 64%) is also an improvement but is still above my desired maximum of 35%. In addition, it’s trading at a significant premium to its calculated fair price of $141.22. With all these factors considered, I will wait for a more opportune time before initiating a position in the company.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I held no position in UPS (0.0% of my Dividend Growth Portfolio). 

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Published at Thu, 13 Apr 2023 23:00:00 -0700