We recently published a list of Dividend Achievers List: Top 15. In this article, we are going to take a look at where United Parcel Service, Inc. (NYSE:UPS) stands against other dividend achievers.

Dividend investing has become increasingly popular over time, as generating regular income remains a key focus for investors. Companies that consistently raise their dividends are particularly appealing, offering not just earnings but the potential for increasing income. Investors typically look for a minimum of 10 years of dividend growth, which is where “dividend achievers” come in. These are companies that have raised their dividends for at least 10 consecutive years.

Dividends play an important role in the overall returns. Over the past 25 years, nearly half of the total return from U.S. equities has come from reinvested dividends and the power of compounding. The broader market achieved an average annual total return of 7.4% during this period, with 55% coming from price gains and 45% from reinvested dividends, as reported by Bloomberg.

Dividend growth stocks have consistently delivered solid returns over time. The Dividend Aristocrats Index, which tracks companies that have increased their dividends for at least 25 consecutive years, has performed well historically. In a January 2019 blog post titled “Exploring Dividend Growth Strategies for Market Downturns,” Phillip Brzenk, S&P’s global head of multi-asset indexes, examined the performance of dividend growth strategies, particularly during market downturns. It was noted that the dividend aristocrats index outperformed the market in 53% of cases, with an average outperformance of 0.16%. In declining markets, the aristocrats outperformed over 70% of the time, with an average gain of 1.13%. However, in rising markets, they underperformed 56% of the time, though the average underperformance was smaller, at -0.34%. This suggests that the dividend aristocrats provided downside protection during months when the broader market experienced losses.

Dividend growers can also help protect against inflation. As rising prices erode investors’ wealth, companies that consistently increase their dividends offer a way to counteract this. While interest rates may seem appealing today, they might not hold the same value in the future. On the other hand, investing in companies with strong business models, assets, and strategies that support long-term dividend growth is often more attractive than opting for short-term, higher-yield investments. A report by Abrdn PLC also highlighted that, over the past 20 years, companies that began paying dividends or consistently increased them outperformed the global index. These dividend growers and initiators also outshined companies that paid dividends without increasing them, as well as those that didn’t pay dividends at all. In addition, the report noted that dividend-growing companies experienced lower volatility and delivered better risk-adjusted returns during this period.

That said, high-yield dividend stocks aren’t necessarily a poor choice. Analysts suggest seeking yields in the 3% to 6% range. According to Nuveen, stocks that pay dividends and also show steady dividend growth can be a sign of quality, as they demonstrate a company’s ability to balance dividend payouts while reinvesting capital to support future growth. With this, we will discuss the dividend achievers’ list.

Our Methodology:

For this list, we looked at a group of dividend achievers, which are known for raising dividends for 10 years or more. From this list, we chose companies with the highest dividend yields as of September 22 and arranged them in order from lowest to highest yield.

We also measured hedge fund sentiment around each stock according to Insider Monkey’s database of 912 funds as of Q2 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).

United Parcel Service, Inc. (NYSE:UPS)

Dividend Yield as of September 22: 5.07%

United Parcel Service, Inc. (NYSE:UPS) is a multinational shipping and supply chain management company that offers various related services to its consumers. The company is a strong dividend payer, having raised its payouts for 22 years in a row. In the past five years, it increased its dividends at an annual average rate of 12%. This dividend growth is mainly attributed to its stable cash position. In the first six months of the year, it posted an operating cash flow of $5.3 billion and its free cash flow for the period amounted to $3.3 billion. The company’s quarterly dividend sits at $1.63 per share for a dividend yield of 5.07%, as of September 22.

United Parcel Service, Inc. (NYSE:UPS) has faced challenges adapting to a changing business environment, characterized by reduced shipping demand and increasing inflationary pressures. It fell short of high-growth expectations as analysts noted a decline in package volumes. Additionally, rising fuel and labor costs squeezed profit margins, impacting earnings. In Q2 2024, the company reported $21.8 billion in revenue, a 1.07% decrease from the same period last year, while operating profit dropped 30% year-over-year to $1.9 billion. The stock is down by over 18% since the start of 2024.

Analysts are reevaluating their outlook on the company in light of its ongoing 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.”

As per Insider Monkey’s database of Q2 2024, 44 hedge funds held stakes in United Parcel Service, Inc. (NYSE:UPS), up from 43 in the previous quarter. These stakes have a total value of over $1.3 billion.

Overall, UPS ranks 4th on our list of Dividend Achievers. 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.