Here's Why UPS Should Cut Its Dividend
There's a good case for buying UPS (NYSE: UPS) stock, and an even better one for buying the stock if it cuts its dividend. It's not just about ensuring that the dividend is adequately supported by cash flow generation in the short term; it's also essential to guarantee that management can fully capitalize on the growth opportunities created by its current actions.In a previous article on UPS, I outlined how management's pre-Liberation Day guidance for 2025 called for $5.7 billion in free cash flow (FCF) when its dividend payment is $5.5 billion, and management plans $1 billion in share buybacks. However, since then, the tariff escalation has undoubtedly impacted the global economy, and UPS declined to update its full-year guidance on its first-quarter earnings call in late April.As such, it's not difficult to see that UPS might be unable to cover its dividend with FCF if it misses its FCF estimate. As for the share buybacks, management has considered debt-financing them as the dividend on the stocks repurchased could be higher than the after-tax debt cost. Continue reading
There's a good case for buying UPS (NYSE: UPS) stock, and an even better one for buying the stock if it cuts its dividend. It's not just about ensuring that the dividend is adequately supported by cash flow generation in the short term; it's also essential to guarantee that management can fully capitalize on the growth opportunities created by its current actions.
In a previous article on UPS, I outlined how management's pre-Liberation Day guidance for 2025 called for $5.7 billion in free cash flow (FCF) when its dividend payment is $5.5 billion, and management plans $1 billion in share buybacks. However, since then, the tariff escalation has undoubtedly impacted the global economy, and UPS declined to update its full-year guidance on its first-quarter earnings call in late April.
As such, it's not difficult to see that UPS might be unable to cover its dividend with FCF if it misses its FCF estimate. As for the share buybacks, management has considered debt-financing them as the dividend on the stocks repurchased could be higher than the after-tax debt cost.
