2 Things Every UPS Investor Needs to Know

With roots tracing back to 1907, United Parcel Service (NYSE: UPS) is not only the oldest continuously operating delivery and logistics company, but it's also the biggest by several measures, including its fleet of 500+ cargo aircraft and the integrated global service network it runs in more than 200 countries and territories.

It's a well known company, but the same can't be said for its stock. Here are two things every UPS investor should know.

1. UPS is still early in its biggest reboot ever

Despite its long heritage and deep "big brown" culture, UPS is currently only about one-third of the way through the most significant operational and strategic overhaul in its history. The multiyear plan -- unveiled in January 2025 and targeted to run through 2027 -- aims to reshape the network away from high-volume, low-margin e-commerce customers like Amazon, while steering capacity toward higher-margin categories such as small-business shipping, logistics, and premium international services.

In its Oct. 28 earnings results and investor presentation, UPS noted that its Q3 volume with Amazon was down 21% from a year ago, and that 93 buildings had been closed as part of its cost reduction push.

"Our focus on revenue quality yielded solid results, as U.S. revenue per piece grew by 9.8% in the third quarter," UPS CEO Carol Tomé said in a statement, emphasizing the benefit of combining revenue-per-piece growth with expense control.

While UPS sees this "moment of disruption" as an opportunity, investors haven't fully signed on yet and recently pushed shares of UPS to a five-year low. While the stock has had a nice 12% rebound since the company reported Q3 results, it is still down 25% year to date, making it the fourth-worst performer among 80 members of the industrial sector.

Image source: UPS.

2. There are pros and cons of a record-high dividend yield

In fairness, UPS was trending lower long before this year, and is down 60% from its all-time high in February 2022. That decline has lifted its dividend yield to an unprecedented 7%, and raised its dividend payout ratio to 98%. While that level suggests there's little financial wiggle room if the company is going to continue making the payments, UPS has been unequivocal in its support for the quarterly payouts to shareholders.

"Commitment to the dividend is one of UPS's core principles and a hallmark of the company's financial strength. UPS has either maintained or increased its dividend each year since going public in 1999," the company said in a Nov. 6 press release announcing its latest dividend.

As UPS continues to rightsize and retool its business away from low-margin work for Amazon, its dividend payout ratio should fall, in line with increasing sales and profits. On average, analysts currently estimate the company's earnings per share will grow by 4% and 11% in 2026 and 2027, respectively, assuming the company executes on its plans.

Investor takeaway

In short, UPS is in the messy middle innings of a multiyear transformation, a move that's pressuring today's results in order to improve tomorrow's economics. For investors, the two big things to know are that the overhaul is still early and that the unusually high dividend yield is both a risk marker and a potential reward if the turnaround stays on track.

Matthew Nesto has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and United Parcel Service. The Motley Fool has a disclosure policy.