Is United Parcel Service, Inc. (UPS) the Best Dividend Stock for Long-Term Passive Income?

In an era where investors increasingly prioritize stable passive income streams, United Parcel Service (UPS) stands out with its 15-year dividend growth streak and a 5.8% forward yield—among the highest in the logistics sector. Yet, beneath its attractive surface lies a complex financial narrative marked by high payout ratios, strategic shifts, and risks. Is UPS truly the “best” dividend stock for long-term income investors, or does its reliance on cost-cutting and uncertain earnings growth pose hidden pitfalls?

The Dividend Track Record: A Strong Foundation, But at What Cost?

UPS has delivered consistent dividend growth, increasing its payout annually since 2008. The latest hike in early 2025 raised the quarterly dividend to $1.64 per share, a 0.6% increase from 2024. This follows a 9.3% compound annual growth rate (CAGR) in dividends since 2015, when the annual dividend stood at $2.68.

However, the payout ratio—the proportion of earnings paid out as dividends—has become a concern. For 2025, analysts project a payout ratio of ~76% of adjusted earnings per share (EPS), far exceeding UPS’s stated target of 50%. While management insists they have “no intent to cut dividends”, this elevated ratio hinges on achieving projected EPS growth of 38.7% for 2025, driven by cost-saving initiatives.

Financial Health: Profitability Over Volume, and the Cost of Cuts

UPS’s 2024 results underscore its pivot to profitability over growth:
- Revenue: $91.1 billion in 2024, with non-GAAP adjusted diluted EPS of $7.72.
- Cash Flow: $6.3 billion in free cash flow, supporting its $5.9 billion in shareholder returns (dividends + buybacks).

For 2025, the company forecasts revenue of $89.0 billion, a deliberate strategic contraction to improve margins. This shift includes:
- Reducing volume with its largest customer by >50% by mid-2026.
- Insourcing its UPS SurePost product (effective January 2025) to cut costs.
- Consolidating 10% of U.S. facilities and shrinking fleets to achieve $1.0 billion in annual savings via its “Efficiency Reimagined” program.

Risks and Challenges: High Payout Ratio and External Pressures

While UPS’s dividend policy prioritizes stability, risks loom large:
1. Earnings Dependence: The 2025 dividend of $6.56 annually requires EPS growth to $8.75, a tall order amid economic uncertainty and labor cost pressures.
2. Regulatory and Operational Headwinds: A $94 million 2024 settlement for an Italian tax dispute highlights regulatory risks. Additionally, the Supply Chain Solutions segment faced a 9.1% revenue decline in Q4 2024 due to asset-light divestitures.
3. Payout Ratio Sustainability: At 76% of projected 2025 EPS, the dividend consumes a disproportionate share of earnings. While management aims to “earn back into” its target ratio over time, any earnings shortfall could force tough trade-offs.

Is UPS the “Best”? A Balanced View

UPS’s 5.8% yield, 15-year dividend growth streak, and fortress-like cash flow ($6.3 billion in 2024) make it a compelling income play. Its strategic moves—network reconfiguration, cost-cutting, and margin expansion—could eventually reduce its payout ratio toward its 50% goal.

Yet, its high payout ratio and reliance on aggressive cost savings raise red flags. Competitors like FedEx (FDX) or even utilities with lower payout ratios offer alternatives with potentially safer dividend profiles. Investors must weigh UPS’s risks against its income potential.

Conclusion: A Strong Bet, but Not Without Caution

UPS is a top-tier dividend stock for income-focused investors willing to tolerate moderate risk. Its 5.8% yield and proven dividend discipline make it a standout in an environment of low bond yields. However, its elevated payout ratio and dependency on cost-cutting to sustain earnings growth mean it’s not for the faint-hearted.

For long-term passive income, UPS is best suited for investors with a multi-year horizon, who can stomach potential volatility and monitor its progress in achieving its $1.0 billion savings target. While it may not be the “best” dividend stock for all portfolios, its combination of yield, resilience, and strategic agility positions it as a compelling option for those prioritizing income—provided they remain vigilant about its financial execution.

In the words of UPS CEO Carol Tomé: “We’re not cutting dividends—we’re growing our way out.” The proof will lie in the numbers.

Analysis based on UPS’s 2024 financial results, 2025 guidance, and dividend history as of April 2025.