UL Solutions: A Beacon of Dividend Sustainability in a Rising Rate Landscape

In an era of rising interest rates and economic uncertainty, investors are increasingly drawn to companies that deliver both reliable dividends and the potential for capital appreciation. UL Solutions (NYSE: ULS), a global leader in safety science and testing, has positioned itself as a compelling candidate for income-focused investors. Its recent dividend increase and robust financial performance underscore its ability to navigate a challenging environment while rewarding shareholders. Let’s dissect why UL Solutions merits serious consideration.

Dividend Sustainability: A Foundation of Discipline

UL Solutions raised its quarterly dividend by $0.005 per share in Q1 2025 to $0.13, marking a 4% annualized increase. This decision reflects confidence in the company’s financial health. To assess sustainability, we must scrutinize its cash flow and payout ratio.

The dividend growth is modest but consistent, aligning with a conservative capital allocation strategy. In 2024, UL generated $287 million in free cash flow, with a 10.7% free cash flow margin, providing ample liquidity to support dividends. At its May 20 closing price of $71.76, the dividend yield stands at 0.69%, modest but sustainable given the company’s strong cash flow.

Crucially, management has prioritized balance sheet health. UL maintains an investment-grade balance sheet, with a disciplined approach to balancing dividends, share repurchases, and strategic investments. The dividend payout ratio (dividends as a percentage of net income) remains conservative, ensuring the dividend is not overly leveraged to earnings volatility.

Total Return Potential: Growth Amid Rising Rates

While the dividend yield alone may not excite income seekers, UL Solutions’ total return potential is compelling. Its stock price has surged 93.54% over the past 12 months, driven by secular tailwinds in its core markets.

The company operates in three high-demand segments: Industrial (testing for energy transition and infrastructure), Consumer (safety certifications for products), and Software & Advisory (digital solutions for risk management). These segments are underpinned by $2.87 billion in annual revenue, with mid-single-digit organic growth projected in 2025.

In a rising rate environment, companies with recurring revenue models and pricing power thrive. UL’s services are non-discretionary, as clients across industries rely on its certifications and testing to meet regulatory and safety standards. This creates a recession-resistant revenue stream, further bolstered by global trends like decarbonization and digitalization.

Risks and Mitigants

No investment is without risks. Currency headwinds could trim 1% of revenue in 2025, and some segments, like Industrial, may face demand normalization as post-tariff demand stabilizes. Additionally, the stock’s P/E ratio of 43.3 and P/B ratio of 15.54 reflect high valuations, which could pressure shares if growth slows.

However, these risks are manageable. UL’s $14.57 billion market cap and diversified global footprint mitigate geographic or sector-specific shocks. Moreover, its $728 million in cash and prudent leverage ratio provide a buffer against volatility.

The Investment Thesis: A Compelling Case

UL Solutions offers investors a rare combination: dividend sustainability backed by robust cash flows and a total return engine fueled by secular growth. While the dividend yield is not the highest, the company’s ability to grow it steadily in an environment where many firms are cutting payouts is a significant advantage.

The stock’s technical outlook further supports buying. With a 50-day moving average of $58.30 and a 200-day average of $53.38, the upward momentum is clear. Analysts’ “Moderate Buy” rating with a 12-month price target of $71.13 (slightly below current levels) suggests further upside if earnings beat expectations.

Call to Action

For investors seeking a defensive yet growth-oriented play, UL Solutions checks all the boxes. Its dividend provides stability, its business model thrives in a risk-averse climate, and its stock offers asymmetric upside. With a year-to-date return of 44.22%, the stock has already delivered, but the best may still be ahead.

Act now: Add UL Solutions to your portfolio for a balance of income and growth. The combination of dividend discipline, secular tailwinds, and a resilient business model makes it a standout pick in a rising rate world.

Data as of May 20, 2025. Past performance is not indicative of future results. Always conduct further research or consult a financial advisor before making investment decisions.