FedEx Outperformed UPS in 2024, but Which Dividend Stock Is the Better Buy for 2025?

Ever since FedEx (NYSE: FDX) announced its plans to separate into two public companies, FedEx and FedEx Freight, in December 2024, investors have been wondering which dividend stock would be the better buy for 2025. While FedEx has outperformed United Parcel Service (NYSE: UPS) in 2024, the question remains: which company offers a more attractive investment opportunity for the coming year?

FedEx's strategic decision to separate into two public companies has been well-received by investors, with the stock price rising following the announcement. The move aims to improve focus, agility, and value propositions for both businesses. FedEx Freight, which has historically had higher margins and been more efficient than the broader business, is expected to unlock significant value for shareholders once the separation is complete.

However, the full impact of this strategic decision on FedEx's performance will become clearer once the separation is finalized. In the meantime, investors may be interested in comparing the dividend payouts and growth prospects of both FedEx and UPS to determine which stock offers a more attractive investment opportunity for 2025.

Dividend Yield and Growth

1. FedEx:
* Dividend Yield: 2%
* Dividend Growth: FedEx has been increasing its dividend in recent years, but its dividend growth rate is lower than UPS's. The company has a history of reinvesting earnings into the business, which may contribute to its lower dividend payout ratio.
2. UPS:
* Dividend Yield: 5.2%
* Dividend Growth: UPS has a history of increasing its dividend, with a 5-year dividend growth rate of approximately 10%. Although the dividend growth may slow down in the near term due to labor challenges and uncertainty, UPS's dividend is expected to remain a core element of its investment thesis.

Dividend Payout Ratio

1. FedEx: FedEx has a lower dividend payout ratio, which may indicate a more conservative approach to dividend distribution or a focus on reinvesting earnings into the business.
2. UPS: UPS's dividend payout ratio is higher than FedEx's, indicating that a larger portion of its earnings is distributed as dividends. This can be seen as a positive for income-oriented investors, as it suggests a more generous dividend policy.

Dividend Role in Stock Performance

1. FedEx: FedEx's lower dividend yield and slower dividend growth may make it less appealing to income-oriented investors. However, its dividend can still provide a steady income stream and may help support the stock's performance in challenging market conditions.
2. UPS: UPS's high dividend yield and history of dividend growth make it an attractive option for income-oriented investors. In 2025, if UPS can maintain or grow its dividend despite challenges, it could help support the stock's performance, particularly if interest rates remain higher for longer or there's an economic slowdown.

Cost-Cutting and Efficiency Improvements

FedEx's focus on cost-cutting and efficiency improvements has played a significant role in its outperformance compared to UPS. The company expects to achieve $4 billion in savings by the end of fiscal 2025 compared to a fiscal 2023 baseline, and another $2 billion in savings by fiscal 2027. This focus on cost-cutting has helped FedEx maintain its margins despite industry challenges.

UPS has also taken cost-cutting measures and operational improvements to address labor challenges and cost increases. The company is on track to deliver $4 billion in savings by the end of fiscal 2025 compared to a fiscal 2023 baseline, and another $2 billion in savings by fiscal 2027. These cost-cutting measures are expected to improve UPS's margins and earnings.

Conclusion

In conclusion, UPS's dividend payouts and growth prospects appear to be more attractive than FedEx's. UPS's high dividend yield and history of dividend growth can play a significant role in its stock performance in 2025, particularly if the company can maintain or grow its dividend despite any challenges it may face. However, investors should also consider the potential impact of FedEx's strategic separation and the company's focus on cost-cutting and efficiency improvements when making their investment decisions. As always, it is essential to conduct thorough research and consider your individual investment goals and risk tolerance before making any investment decisions.