Is United Parcel Service Stock a Buy Despite Tariff Worries?

At its current share price, United Parcel Service's (NYSE: UPS) dividend offers investors a huge 6.4% yield. That payout is backed by 16 straight annual dividend increases, so given that the S&P 500 (SNPINDEX: ^GSPC) index is only offering a measly 1.3% yield, income-seeking investors should be doing a deep dive on UPS today. But is the logistics giant's stock worth buying as international trade faces the threat of tariff-driven upheavals?

What goes up comes back down

Business situations, and emotions, change quickly on Wall Street. Beginning in 2020, the coronavirus pandemic led investors to drive UPS stock sharply higher. The thesis seemed to be that COVID would keep people stuck in their homes forever and, thus, they would have to buy more things over the internet. That, in turn, would result in massive growth for package delivery companies like UPS.

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UPS data by YCharts.

As it turned out, thanks to historically rapid and impressive vaccine development, the coronavirus was, if not beaten, reduced from a pandemic-level health crisis to an endemic issue that the world has largely learned to live with. As the threat receded, people started to venture out into the real world again and the optimism about UPS' prospects turned sour. The stock plunged and management started to retrench. This hasn't been a minor headwind for the stock: It has lost more than half of its value from the peak it hit in early 2022.

The business overhaul of UPS has been material. It has been closing facilities, modernizing the facilities it is keeping, and working with its union to iron out a new labor deal. The big goal is to boost profitability, and management has had some success on that front. The company's profit margin, which is down by about 50% from its high, appears to have hit an inflection point in the middle of 2024.

Image source: Getty Images.

Tariff troubles and self-inflicted "wounds"

The thing is, when UPS' profit margin stabilized, management made a bold decision to keep going on the revamp. Instead of just coasting on the good news, it announced that it was going to materially curtail its relationship with its largest customer, Amazon.com. The logic was pretty simple: The business UPS does with Amazon isn't very profitable. And the e-commerce giant has been working to expand its own distribution network, so that low-margin business was likely to dwindle over time, anyway.

Investors didn't appreciate the decision, but it was made from a position of strength. It is likely that it will prove to have been the right long-term call, even if it means some additional near-term pain.

However, the current White House administration's fluctuating tariff policies have created uncertainty in global trade relationships. Cautious investors have continued to dump UPS' shares, which are down by nearly 20% so far in 2025.

That sell-off seems reasonable if you believe that global trade will never fully recover from President Trump's trade war. However, that doesn't seem like the most likely outcome, given the interconnectedness of the modern world. It seems more likely that rhetoric will be intense, but that in the end, cooler heads will prevail. The recent movement between the United States and China on trade talks offers an example of how that could play out. All in, it is likely that investors are overly negative on UPS's prospects now after having been overly positive about them during the pandemic.

UPS is still operating from a position of strength

UPS has plenty of work ahead of it as it continues to streamline its business. That will notably include trying to adjust to handling materially less package volume thanks to its shift away from Amazon deliveries. Execution will remain an important thing to monitor.

Nevertheless, experienced dividend investors would understand that the company appears to have stabilized its core. That means that it is facing both the tariff-related headwinds and the self-imposed Amazon-related headwinds from a position of strength. Its bottom line is still being impacted by the costs of revamping the business, so earnings may not be the most meaningful metric to track right now. But it is worth highlighting that first-quarter 2025 revenues and operating profits were up year over year. In other words, UPS still appears to be executing well despite everything it faces. That should make it an interesting investment option for those who are willing to venture into turnaround situations.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool recommends United Parcel Service. The Motley Fool has a disclosure policy.