Should You Buy United Parcel Service While It's Below $120?

United Parcel Service (NYSE: UPS) is one of the world's largest package delivery companies. It has a network that would be difficult, if not impossible, to replace. Add in a lofty 6.5% dividend yield, and you can see why income investors would be interested in buying the stock while it is trading near $100 per share. Is it worth it?

The big risk dividend investors have to consider

While UPS has an attractive yield, its payout ratio is rather unattractive. At the end of 2025, the trailing 12-month dividend payout ratio was over 100%. That materially increases the risk of a dividend cut, given that it would require all of the company's earnings to cover just the dividend.

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Luckily, dividends aren't paid out of earnings. They are paid out of cash flow, so a payout ratio can rise above 100% for a period without triggering a dividend cut. As it stands, UPS is signaling that it intends to maintain the dividend at its current level in 2026. Still, conservative dividend investors may want to tread with caution.

The turnaround is having the intended impact

The real issue, however, is the turnaround UPS is currently implementing. It is cutting costs, modernizing and streamlining, and refocusing on its highest-profit customers. Its business is huge and complex, so this is no easy task. Right now, costs are high and, by design, the company's top line is falling as it sheds customers that aren't very profitable to serve. Notably, the company is pre-emptively reducing its reliance on Amazon (NASDAQ: AMZN), which has increasingly been delivering its own packages.

The company believes 2026 will be the inflection point, with the second half of the year expected to be stronger than the first. Right now, the big positive is the ongoing improvement in the revenue per piece that's taking place in the U.S. business. It is an early sign that the company's turnaround efforts are having the intended impact.

Is now the time to buy UPS?

For more aggressive dividend investors, UPS could be worth buying while it is trading around $100. However, the turnaround is still underway, and the industrial sector is cyclical. Given the uncertainty around the economy and geopolitical events, a recession could easily push this turnaround's inflection point further into the future. More conservative dividend investors may want to keep UPS on the wish list until the turnaround is further along.

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.