We recently compiled a list of the Dividend Stock Portfolio: 8 Stocks To Invest In According to Reddit. In this article, we are going to take a look at where United Parcel Service, Inc. (NYSE:UPS) stands against the other dividend stocks.
Investment trends have been shifting steadily in line with market movements. Technology stocks have become the focal point, outpacing all other asset classes. Moreover, dividend stocks are gaining traction with investors due to their capacity to provide steady income. While these stocks are trailing behind the broader market, the inclusion of major tech companies in the dividend space has sparked enthusiasm among financial experts regarding the future of dividend investing. Retail investors are also on the lookout for reliable income sources, reinforcing this trend. According to a report by JPMorgan Chase, non-professional investors now account for a larger portion of the US options market than ever before, with a particular focus on short-term trades and a preference for technology stocks. In June, retail traders set a new record by contributing 18.3% of all options activity. Over 60% of their trades involved contracts set to expire within a week or less, with tech options being the most popular choice in individual stock trades.
A Forbes report highlighted that retail trading hit a peak in 2023, making up around 23% of the trading volume during one week early in the year. This demonstrates that the influence of retail investors extends beyond the meme stock craze. The report, which also referenced data from the Federal Reserve System, noted that despite recession concerns, median net worth jumped 37% between 2019 and 2022, marking a record increase. As a result, more people became active in the stock market.
Retail investors, much like experienced investors, are increasingly drawn to dividend stocks due to the growing interest in them. When investing in dividend stocks, investors tend to favor high-quality companies—those with a strong history of regularly raising their dividends. Experts have observed that the Dividend Aristocrats index, which tracks firms with a minimum of 25 consecutive years of dividend growth, has delivered better performance than the broader market over time. Dan Lefkovitz, a strategist for Morningstar Indexes, also favored dividend stocks in the current market environment. Here are some comments from the analyst:
“Investing in dividend-paying stocks is a good way to participate in equities over the long term. There have been long stretches when the dividend-paying section of the market has outperformed. Eventually, they’ll come back into favor. Dividend-paying stocks have a value bias. To the extent that there’s a rotation away from technology and growth into the value side of the market and more old economy sectors, that’s going to benefit the dividend-paying portion of the market.”
Despite underperforming last year, global companies still delivered record dividends to shareholders. Income investors worldwide saw a particularly strong second quarter in 2024. According to the latest Janus Henderson Global Dividend Index report, payouts increased by 5.8% on a headline basis, reaching an all-time high of US$606.1 billion. The underlying growth was even more robust at 8.2%, once the impact of exchange rates, especially the weak Japanese yen, was factored in. Following this strong performance and accounting for the significant contributions from new dividend payers this year, Janus Henderson has upgraded its 2024 dividend forecast. The global dividend distribution is now projected to reach US$1.74 trillion, reflecting a 6.4% underlying growth compared to 2023 (up from the previously expected 5.0%) and a headline rise of 4.7% (up from 3.9%). With this, we will discuss some of the best dividend stocks for a dividend stock portfolio.
Our Methodology:
For this list, we carefully examined popular Reddit trading forums such as r/dividends, r/WallStreetBets, r/stocks, and r/trading, where everyday investors discuss and exchange investment ideas. After conducting comprehensive research and analysis, we selected 20 dividend stocks that were getting a lot of attention on Reddit as of September 21. From this group, we chose 15 stocks that had the most hedge fund investors, as tracked by Insider Monkey, during the second quarter of 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A warehouse filled with boxes of parcels, symbolizing the companies reliable logistics services.
United Parcel Service, Inc. (NYSE:UPS)
Number of Hedge Fund Holders: 44
United Parcel Service, Inc. (NYSE:UPS) is an American multinational shipping and supply chain management company that offers various related services to its consumers. The company has struggled to adjust to a shifting business landscape, marked by lower shipping demand and growing inflationary pressures. It failed to meet high-growth expectations as market analysts observed a drop in package volumes. Furthermore, rising fuel and labor costs put pressure on profit margins, negatively affecting earnings. In the second quarter of 2024, the company generated $21.8 billion, which fell by 1.07% from the same period last year. Its operating profit also declined by 30% YoY at $1.9 billion.
Analysts are reconsidering their outlook on the company due to its current challenges. ClearBridge Investments also decreased its position in United Parcel Service, Inc. (NYSE:UPS) in the second quarter of 2024 and made the following comment in its Q2 2024 investor letter:
“Our industrials holdings weighed on relative performance as we are more exposed to transports such as “less than truckload” provider XPO and parcel delivery company United Parcel Service, Inc. (NYSE:UPS), which are struggling with weak volumes during the post-COVID freight recession. With industry volumes down to pre-COVID levels and strong pricing power in the LTL space in particular, we believe that the next upcycle will prove to be very strong for earnings. As a result, we added to XPO in the quarter while reducing our position in UPS on concerns that industry capacity remains excessive. Meanwhile, we have less exposure to electrical equipment stocks, which have been rewarded by views that they will benefit from the buildout of AI data centers.”
That said, United Parcel Service, Inc. (NYSE:UPS) is popular among the Reddit community because of its strong dividend history. In the past five years, the company has raised its payouts at an annual average rate of nearly 12%. Moreover, its cash position has also attracted the attention of retail investors. In the first six months of the year, the company reported an operating cash flow of $5.3 billion and its free cash flow amounted to $3.3 billion. Due to its strong cash generation, the company was able to raise its dividend payouts for 22 years straight. It currently offers a quarterly dividend of $1.63 per share for a dividend yield of 5.07%, as of September 21. It is among the best stocks for a dividend stock portfolio.
At the end of Q2 2024, 44 hedge funds tracked by Insider Monkey reported having stakes in United Parcel Service, Inc. (NYSE:UPS), up from 43 in the previous quarter. These stakes have a total value of more than $1.3 billion. With 2.6 million shares, Marshall Wace LLP was the company’s largest stakeholder in Q2.
Overall UPS ranks 8th on our list of the best dividend stocks to buy. While we acknowledge the potential of UPS as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than UPS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.