At over five times the S&P 500 average, UPS stock currently offers an extremely high dividend yield that could be attractive to income-focused investors. Such high yields, however, are also often warnings signs of elevated risks and may not be sustainable over the long run. Today, let’s take a look at whether or not UPS can sustain its dividend and how the stock could look for long-term investors.
How High Has the UPS Dividend Gotten?
With the stock having fallen by over 30 percent in the past year, UPS shares now yield just over 7 percent, paying $1.64 each quarter. For reference, the S&P 500 average yield is currently just 1.2 percent, and even Vanguard’s high-yield VYM ETF is only delivering a yield of about 2.5 percent.
The Problem of Covering the Dividend
The main challenge to UPS’ dividend at the moment is the fact that it isn’t being fully covered by the business’s free cash flows. In the first nine months of 2025, UPS generated $2.7 billion in FCF. Full-year projections, however, anticipate $5.5 billion in dividend payments and a further $1.0 billion in share buybacks, the latter having already been completed as of the time of the Q3 earnings report.
This leaves a substantial amount of UPS’ dividend expenses that must be covered by a combination of existing cash reserves and borrowing. Though dividends aren’t the only expenses in play, the debt load at UPS has risen to a total of $28.5 billion as UPS has sought to cover its costs. As a result, UPS will have to be able to significantly increase its cash flows going forward to sustain its dividend over the long haul.
Will the UPS Turnaround Plan Fix the Problem?
Although UPS is facing challenges, it’s worth noting that the business has been anything but passive in addressing them. In response to narrowing margins on eCommerce packages, UPS has executed a planned reduction in the volume of those packages it is handling. Instead, the business is focusing on higher-margin revenue streams that have the potential to put it back on track.
This more intense focus on margin over package volume may take time to show up in UPS’ financial results, but the business is making significant moves to support its new strategy. A key example is the recent decision to buy Andlauer, a Canadian supply chain business that specializes in temperature-sensitive healthcare products, for $1.6 billion. With the Andlauer acquisition, UPS can expand its presence in the high-margin healthcare transportation field. This is just one of the fields that UPS is turning to as high-volume eCommerce package transportation becomes less profitable.
Recently, UPS also announced that it had taken the drastic step of laying off 48,000 workers so far this year as part of its drive toward greater efficiency. Though this may look negative at first, it’s a natural response to the reduced volumes and obvious need to expand margins to reassure shareholders.
It’s worth noting that Q3 was still a challenging quarter for UPS, with consolidated revenues of $21.4 billion down 3.7 percent compared to the year-ago quarter. Net income suffered an even larger drop of 14.8 percent to $1.3 billion. As UPS’ leaner operating plan and focus on higher-margin business lines go forward, however, there’s a significant chance for recovery.
Secular Challenges Still Remain
Although UPS has made some fairly significant progress toward adjusting, it’s important to note that some of the pressures on its business may stay in place for the foreseeable future. Of greatest concern is the combination of higher tariffs and the ending of the de minimis exemption that previously allowed packages worth less than $800 to enter the US without being subject to import duties. While the Supreme Court is expected to rule on some of the Trump administration’s signature tariff policies soon, it’s very likely that the overall rate of tariffs in the US will remain significantly higher than it historically has been for quite some time to come.
These factors have both reduced the volume of packages UPS is handling and created a logistical snarl for it and other large parcel carriers when it comes to handling packages entering the United States. While UPS is actively leveraging agentic AI tools to help deal with some of the increases complexity, long delays and missing packages have prompted a wave of customer complaints that is far from ideal for a business trying to turn itself around.
Are Investors Getting a Bargain on UPS?
Understanding that UPS carries its fair share of risks, it’s only natural for investors to look for a fairly low price on the shares. At the moment, UPS shares are trading at 14.4 times earnings, 0.9 times sales and 18.0 times cash flow. Although there valuation metrics aren’t exactly tiny, it’s worth taking into account that the current P/E is on the low side relative to where UPS has traded since 2023.
UPS has also fallen a bit below the average analyst price target of $103.62. From its current price of $92.91, this target would imply a gain of 11.5 percent. Analysts remain split roughly down the middle on the stock, as there are currently 13 buy ratings, 13 hold ratings and 1 sell rating outstanding.
Can UPS Sustain Its Dividend?
For the immediate future, UPS doesn’t appear to be poised to slash its dividend. The long-term outlook, however, is a bit less clear. With free cash flows currently insufficient to keep the dividend up, UPS will either have to make serious progress when it comes to generating cash or eventually reduce its dividend to a more modest level. Given that UPS has been raising its dividend for 15 consecutive years, however, management will likely be reluctant to break that streak unless it’s absolutely necessary.
As such, UPS offers a bit of an elevated risk in exchange for the chance of very strong dividend income. If the business’s turnaround proves to be successful enough to revive its cash flows, investors who buy today could lock in extremely attractive long-term yields on cost. Given the lengths that UPS is currently going to in reviving its business and reorienting itself for growth, the reward could prove high enough for investors who are willing to accept a somewhat high level of risk.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.