The company has managed to grow dividends annually since 2009. The last increase was in February 2019, when the dividend was increased by 5.50% to 96 cents/share.
Over the past decade, UPS has managed to grow dividends at an annual rate of 7.30%/year. In other words, the company doubled dividends per share, despite the fact that it didn’t grow them every single year over the past decade.
Between 2008 and 2018, UPS managed to grow earnings per share from $2.94 to $5.51. UPS has announced a 2019 Adjusted EPS Guidance Range of $7.45 to $7.75/share. The range excludes the impact of mark-to-market changes in pension liabilities.
The company generates a little over 60% from US operations, while 20% comes from international. The rest is derived from its supply chain and freight operations. Packages are moved through ground delivery and air delivery ( 83% and 17% respectively). UPS Supply Chain Solutions manage every aspect of global supply chains, including logistics, distribution, transportation, LTL, air freight, ocean shipping, customs brokerage etc..
Revenues can be positively affected by growth in volumes and pricing increases. UPS and FedEx have a strong presence in the US domestic market, essentially operating as a duopoly. This means that it would be very difficult and costly for a competitor to gain market share, and do so in a profitable manner. This bodes well for pricing and margins. Growth will be driven by increasing economic activity over time, and a lot from the rise in ecommerce.
International operations could also be an opportunity for future growth. International operations are expected to grow faster than domestic ones, due to the higher expected growth of international economies.
Growth could also be realized through strategic or bolt-on acquisitions. Given the high market share that UPS has however, it is very likely that these deals will be heavily scrutinized by regulators. A prime example includes the company’s attempt to acquire TNT Express in 2012, which was ultimately scrapped one year later.
Between 2008 and 2018, the company managed to reduce the number of shares outstanding from 1.022 billion to 871 million. A consistent share buyback program gradually increases the percentage ownership for shareholders who keep their shares, at the expense of those who sell their stock to the company. If a business doesn’t overpay for these shares, the remaining shareholders are better off.
The dividend payout ratio increased from 61% in 2008 to 66% in 2018. The forward payout ratio is at 52%.
Currently, UPS trades at 14.10 times forward earnings and yields 3.70%. I find the stock to be attractively valued today.
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