United Parcel Service, Inc. Dividend Stock Analysis

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Linked here is a detailed quantitative analysis of United Parcel Service, Inc. (UPS). Below are some highlights from the above linked analysis:

Company Description: United Parcel Service, Inc. is the world's largest express delivery company, UPS has established itself as a facilitator of e-commerce.

Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

UPS is trading at a discount to 1.) and 3.) above. When also considering the NPV MMA Differential, the stock is trading at a 50.9% premium to its calculated fair value of $96.01. UPS did not earn any Stars in this section.

Dividend Analytical Data: In this section, there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%

UPS earned one Star in this section for 3.) above. UPS earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 2000 and has increased its dividend payments for 15 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
2. Years to > MMA

The NPV MMA Diff. of the $281 is below the $2,000 target I look for in a stock that has increased dividends as long as UPS has. The stock's current yield of 4.5% exceeds the 3.75% estimated 20-year average MMA rate.

Peers: The company’s peer group includes: FedEx Corporation (FDX) with a 1.9% yield, Deutsche Post AG (DHL.DE) with a 4.8% yield, and Air T, Inc. (AIRT) with a 0.0%.

Conclusion: UPS did not earn any Stars in the Fair Value section, earned one Star in the Dividend Analytical Data section, and did not earn any Stars in the Dividend Income vs. MMA section for a total of one Star. This quantitatively ranks UPS as a 1-Star Very Weak stock.

Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $78.95 before UPS's NPV MMA Differential increased to the $2,000 minimum that I look for in a stock with 15 years of consecutive dividend increases. At that price the stock would yield 8.3%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $2,000 NPV MMA Differential, the calculated rate is 6.9%. This dividend growth rate is higher than the 0.6% used in this analysis, thus providing no margin of safety. UPS has a risk rating of 2.00 which classifies it as a Medium risk stock.

UPS is geographically diversified with an expanding revenue base and a track record of growing its earnings. Its Free Cash Flow Payout of 110% (up from 61%) is a above my acceptable level, and its Debt To Total Capital of 61% (up from 54%) is also above my desired maximum. In addition, it's trading at a significant premium to its calculated fair price of $96.01. With all these factors considered, I will wait for a more opportune time before initiating a position in the company.


More By This Author:

Abbott Laboratories Dividend Stock Analysis
Leggett & Platt, Inc. Dividend Stock Analysis
General Dynamics Dividend Stock Analysis

Disclosure: At the time of this writing, I held no position in UPS (0.0% of my Dividend Growth Portfolio). 

Disclaimer: The material presented here is for informational purposes ...

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