UPS Stock: Why Buying Before July 29 Might Be a Smart Move

UPS's high dividend yield and low market expectations suggest the dividend may be at risk of being cut. However, this could be a positive move, as it would free up cash for investments in growth areas like healthcare and small and medium-sized business revenue, and reduce uncertainty surrounding the stock. Investors should monitor the upcoming second-quarter earnings announcement closely, as a dividend cut could be a silver lining for the company's long-term prospects.

United Parcel Service (UPS) has been under scrutiny due to its high dividend yield and low market expectations, which suggest a potential risk of a dividend cut. However, a dividend cut could potentially be a positive move for the company, according to recent analysis.

UPS's dividend yield stands at 6.6%, significantly higher than the 10-year Treasury yield of about 4.5%. This wide spread indicates that the market is skeptical about the sustainability of UPS's dividend [1]. The market's doubt is likely due to concerns about the company's ability to maintain its dividend in the face of potential tariffs and trade conflicts.

Despite these concerns, a dividend cut could be a catalyst for stock outperformance. A dividend cut would free up cash for UPS to invest in growth areas such as healthcare and small and medium-sized business revenue. Additionally, it would reduce uncertainty surrounding the stock and encourage investors to focus on the company's growth opportunities rather than the sustainability of its dividend.

Moreover, UPS's plans to reduce low or even negative margin deliveries for Amazon by 50% from the start of 2025 to mid-2026 are a strategic move to maximize profitability. This reduction would free up additional cash for investments in technology to improve its network, which could be accelerated with a dividend cut.

Investors should monitor UPS's upcoming second-quarter earnings announcement closely. While a dividend cut may initially be seen as negative, it could be a silver lining for the company's long-term prospects. It would signal a focus on growth and profitability, potentially leading to better long-term returns for shareholders.

References:

[1] https://www.theglobeandmail.com/investing/markets/stocks/UPS-N/pressreleases/33514110/1-incredible-reason-to-buy-ups-stock-before-july-29/