Prediction: UPS Dividend Remains Frozen Through 2027

UPS (NYSE:UPS) declared its quarterly dividend of $1.64 per share earlier this month, payable Sept. 3. The declaration got no attention, which is understandable. It was the seventh straight quarter at the same rate.

That streak is the story, though. My prediction is that it keeps going: no dividend increase in 2026, none in 2027, and a payout that sits frozen at $6.56 per year through the end of 2027.

Not cut (the parcel giant guards this dividend fiercely) but frozen, because the cash-flow math has stopped leaving room for anything more.

Image source: Getty Images.

A 91% payout

The dividend's cost is easiest to see against earnings. UPS guided for 2026 non-GAAP (adjusted) earnings per share of about $7.22 when it reported second-quarter results on July 28. An annual payout of $6.56 works out to about 91% of that.

And the earnings basis matters here. On a GAAP basis, UPS earned just $0.71 per share in the second quarter, weighed down by $891 million of after-tax charges tied to workforce reductions, against $1.76 adjusted. The adjusted figure is the flattering one, and the dividend still consumes nine-tenths of it.

At around $102 per share as of this writing, the stock yields 6.4%, more than six times what an S&P 500 (SNPINDEX:^GSPC) index fund pays.

A yield that high, on a blue-chip dividend stock, is the market saying it doubts this payout grows from here. I'd go further. The doubt is well-founded, even if an outright cut never comes.

The dividend outruns the cash

Now the cash. Through the first six months of 2026, UPS generated $3.1 billion of operating cash flow, up from $2.7 billion in the same period a year earlier, and spent $1.7 billion on capital projects. Free cash flow, on the company's own measure, came to about $1.6 billion -- and dividends over the same stretch came to $2.7 billion.

So the business funded about 60% of its dividend internally and covered the rest from its balance sheet.

Other signs point in the same direction. Share repurchases, a $1 billion item in the first half of last year, went to zero this year. And UPS has been borrowing. The company sold $1 billion of five-year notes on Aug. 10 and another $325 million of long-dated floating-rate notes on Aug. 14.

One detail from that first bond sale stands out. UPS earmarked $450 million of the new notes for contribution directly to its pension trusts. A company funding pension obligations with freshly issued debt, while paying out $5.4 billion a year in dividends, is a company managing its cash carefully because it has to.

To be fair, the second half should look better. UPS raised its full-year outlook to about $91.2 billion of revenue, and its U.S. domestic segment's adjusted operating margin expanded a full percentage point year over year to 8% last quarter. And the costly walk-away from Amazon volume is finished. Management says the 18-month glide down of that business and the network reshuffle around it wrapped up as designed, and the deliberate trade of volume for profitability is what shows up in that expanding margin.

Additionally, management expects about $3 billion of full-year capital expenditures against $5.4 billion of dividends, and cash flow typically builds late in UPS's year.

Freeze, not cut

But better is not the same as enough. Management's own full-year outlook calls for free cash flow of about $5.5 billion, one-time buyout payments included, next to the $5.4 billion dividend bill. Even hitting its targets, UPS exits 2026 with a payout that consumes about 91% of adjusted earnings and essentially all of the free cash. The next increase has to come from somewhere, and every source (an earnings recovery, lower charges, the finished network overhaul) is already spoken for by the current rate.

That is why I expect a freeze rather than a cut. UPS calls its commitment to the dividend "one of UPS's core principles and a hallmark of the company's financial strength," and its own phrasing is that it has "maintained or increased" the payout every year since going public in 1999.

That wording leaves room to stand still. And the company has been using the room -- every declaration since the start of 2025 has been $1.64.

Could UPS tack on a token penny to keep the growth streak technically alive? It could. A cent per quarter costs only about $35 million a year. But seven quarters of standing still suggest management has already made its choice. I expect the $1.64 rate to hold through 2027, and I'd treat the 6.4% yield as compensation for a payout that has stopped growing.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends United Parcel Service. The Motley Fool has a disclosure policy.