United Parcel Service's (UPS) Dividend Yield Surges to 7.56%, Should You Buy the Dip?

United Parcel Service (UPS) has joined the exclusive list of S&P 500 companies with a dividend yield of over 7% after its Q2 earnings missed estimates. The stock has corrected by 15% to a market cap of $73 billion, with a payout ratio nearing 90%. Despite a high dividend yield, UPS' financials are weakening, with a 2.7% revenue drop and a 13.4% earnings decline. The company's liquidity position remains solid, but its forward P/E ratio is below the sector median and its own five-year average.

United Parcel Service (UPS) has joined the elite group of S&P 500 companies offering a dividend yield of over 7% following its Q2 earnings report. The stock, however, has corrected by nearly 15% to a market capitalization of $73 billion, with a payout ratio nearing 90%. Despite the attractive dividend yield, UPS' financials are weakening, with a 2.7% revenue drop and a 13.4% earnings decline in the second quarter of 2025.

The company reported revenues of $21.2 billion, a 2.7% decrease from the previous year. While the core domestic segment experienced a marginal decline, the international segment saw a 2.6% increase. Earnings per share (EPS) fell by 13.4% to $1.55, missing consensus estimates of $1.56. The net cash from operating activities also decreased to $2.7 billion, although the company maintained a solid liquidity position with a cash balance of $6.2 billion and short-term debt levels of $1.6 billion.

The stock's correction has brought its forward price-earnings (P/E) ratio to 13.1x, significantly below the sector median of 20.4x and its own five-year average of 17x. UPS is trading at undervalued levels, suggesting potential upside for investors.

CEO Carol B. Tome expressed caution about the company's prospects in the latest earnings call, attributing the financial results to a complex macro environment. She highlighted the growth in the international segment and announced plans to acquire Estafeta and Andlauer Healthcare Group, aiming to expand into the healthcare logistics segment. UPS is also accelerating its use of automation and drones to optimize operations and reduce costs.

However, UPS faces challenges, including soft demand for small packages, increased costs from tariffs, and the intentional scaling back of lower-margin business with Amazon. The company's recent performance raises concerns about the sustainability of its dividend, with the current quarter's EPS of $1.55 nearly equal to the dividend of $1.64 per share.

Analysts have rated UPS a "Moderate Buy" with a mean target price of $107.21, indicating potential upside of about 24% from current levels. Despite the challenges, UPS remains positioned as the leading global provider of integrated logistics, with a forward-looking strategy focused on technology and operational efficiency.

References:
[1] https://www.barchart.com/story/news/34059781/this-high-yield-7-dividend-stock-is-down-significantly-in-2025-should-you-buy-the-dip
[2] https://www.ainvest.com/news/metlife-q2-revenue-falls-short-stock-takes-hit-2508/
[3] https://finance.yahoo.com/news/heres-why-ups-stock-slumped-180407148.html