Should You Buy United Parcel Service Stock While It's Below $110?

United Parcel Service (NYSE: UPS), commonly known as UPS, operates one of the world's dominant package delivery services. It is a vital cog in modern society, as e-commerce continues to grow. Add a huge 6% dividend yield, and dividend investors might be tempted to buy the stock while it languishes below $110 per share. Before you jump aboard, you'll want to understand a few things.

It would be hard to replicate UPS's business

Delivering packages sounds simple, but it is actually a capital-intensive, logistically complex effort. UPS owns a large collection of retail stores, sorting and distribution facilities, a massive fleet of local delivery trucks, and long-haul assets, like tractor-trailers and airplanes. And it has to have the technology to track every single package moving through its extensive system.

Image source: Getty Images.

It would be hard, if not impossible, to replace UPS. In fact, even after years of building its own delivery network, e-commerce giant Amazon (NASDAQ: AMZN) still uses UPS. However, Amazon is also a key part of UPS's current business revamp, with the story dating back to the coronavirus pandemic in 2020.

During the pandemic, shopping online was the preferred way to buy things because people were stuck at home, socially distancing themselves. Demand for package delivery services skyrocketed, and UPS's stock rose dramatically. When the world reopened, demand normalized, and UPS's stock plunged. It was about this time that this industrial company decided it needed to overhaul its business. Amazon is important here because it is a large-volume customer, but that volume has very low profit margins.

UPS decided it needed to streamline its operations and focus its business on its most profitable customers. This effort included proactively reducing its exposure to Amazon. The business turnaround also involved capital investments in new technology and the closure of less efficient facilities. Essentially, it was spending more money and bringing in less revenue. Wall Street has been avoiding the stock, which is still about 53% below its 2022 high.

Green shoots are showing up

It is entirely reasonable that investors were concerned about the income statement trends emerging at UPS. However, turnarounds often look ugly at first since they usually require upfront spending that doesn't provide a return until some time down the road. UPS is starting to see early improvement, which is very encouraging.

For example, in the second quarter of 2025, the company's revenue per piece in the U.S. market rose 5.5% even as the revenue for the division fell roughly 0.8%. However, that's exactly what you would expect based on what UPS was attempting to achieve: handle fewer, but more profitable, packages.

The second-quarter progress was followed by an even stronger result in the third quarter. Revenue per piece in the U.S. jumped 9.8%, even as the revenue in the U.S. business fell 2.6%. Overall, the company's adjusted operating margin improved 110 basis points year over year. Again, that's more progress toward the big goal and a sign that better business trends may be starting to take shape.

Wall Street is getting excited

UPS' share price has bounced off its recent lows and is now up 24% over the past three months. It looks like investors believe the turnaround effort is gaining traction. If you like turnarounds, UPS could be worth buying today.

However, dividend investors might want to tread with caution. The lofty 6% yield is backed by a dividend payout ratio above 100%. Sometimes, big business overhauls are accompanied by a dividend reset. That said, even a 50% dividend cut would still leave the yield at 3%, well above the tiny 1.1% on offer from the average S&P 500 stock today.

Reuben Gregg Brewer 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.