Dividend Matchup: UPS vs FedEx

Published Mon, 23 May 2016 12:00 CET by DividendYields.org

Package delivery companies are responsible for transporting a product from its point of origin to its destination. Also known as logistics companies, package delivery companies aim to deliver growth and profitability in a challenging industry that requires sharp strategic choices. The geographic coverage of transportation and logistics companies has the potential to reward strategic decision with a focus on outperforming market expectations. At the same time, the industry has low barriers to entry and intense competition, creating new opportunities to enter new markets and redefine existing business models.
This article discusses FedEx and UPS, the leaders in the Transportation & Logistics Industry. Both companies have outperformed the NYSE Composite Index and the S&P500 YTD and they both trade close to their 52w high. Their average dividend per share is $2.06, yielding 1.86% at an average payout ratio of 42.6%. For the coming years, both FedEx and UPS are expected to increase their profitability and deliver a strong dividend to their shareholders.

FedEx and UPS YTD Stock Performance Graph
FedEx (NYSE: FDX) is a Memphis, Tennessee-based package delivery company that engages in the provision of transportation, e-commerce, and business services both in the United States and worldwide. Through its FedEx Express, FedEx Ground, FedEx Freight, and FedEx Services, the company offers its professional packaging and delivery services as well as its sales, marketing, information technology, communications, customer service, and back-office support services to more than 220 countries around the globe.

Q3 2016 Financial Results
In the third quarter of 2016, FedEx maintained its strong financial performance, mainly driven by a growing demand for the FedEx business solutions. This has boosted the company’s revenues as well as operating cash flows. Revenues grew 8.0% YoY to$12.7 billion from $11.7 billion in Q3 2015, generating a gross profit margin of 71.0%, up 1.1% YoY from 70.3%. Total operating expenses grew 10.4% YoY to $11.8 billion from $10.7 billion. Operating income declined 16.8% YoY to 864 million from $1.04 billion and net income declined 19.3% YoY to $507 million from $628 million in the same period last year. On the upside, operating cash flow reached $3.8 billion from $2.5 billion, a 54.7% YoY increase. [The company’s fiscal year runs from June 1st to May 31st]

Dividend Growth & Outlook
Since 2002, FedEx has had a dividend growth of 400% or 28.6%, suggesting a sustainable stock for dividend income. In 2015, the company declared an annualized dividend of $1.00 per share, yielding 0.63% at a payout ratio of 28%, higher than the average payout ratio 11.3% of the Transportation & Logistics Industry. In addition, on February 19, 2016, FedEx declared a quarterly dividend of $0.25 per share. Through 2018, analysts estimate an average EPS of $11.84, up 236% from current EPS of $3.52. This will lower the company payout ratio to 8.4%. At the same time, dividend per share I s expected to increase 9.67% to $1.10 on average over the next three years.

Name Price ($) 52 wk low 52 wk high 52 wk low % 52 wk high % Market Cap ($ b) P/E D/E Beta Payout Ratio
FedEx 161.63 119.71 185.19 35.02% -12.72% 42.81 45.30 0.59 1.22 28%
UPS 101.51 87.30 107.32 16.28% -5.41% 89.11 18.35 4.58 0.91 57%

United Parcel Service (NYSE: UPS) is an Atlanta, Georgia-headquartered package delivery company that provides transportation, logistics, and financial services in the United States and internationally. Through its U.S. Domestic Package, International Package, and Supply Chain & Freight segments, UPS offers time-definite delivery in the United States, Africa, Asia-Pacific, Canada, Europe, Latin America, and the Middle East.

Q1 2016 Financial Results
In the first quarter of 2016, UPS delivered strong financial results due to its long-term strategy that combines revenue growth and benefits from accelerated investments. UPS achieved record first quarter results driven by both the U.S. Domestic and International Package segments. Operating profit in the international segment grew 15% YoY to $574 million, whereas U.S. Domestic operating margin expanded on solid revenue growth and reduced per unit costs from productivity gains. The company’s quarterly results are as follows:

  • Revenues reached $14.4 billion, up 3.2% YoY from $14.0 billion
  • Gross profit margin grew 1.0% to 83.0% from 82.1%
  • Total operating expenses grew 9.0% YoY to $12.6 billion from $12.3 billion
  • Operating income reached $1.8 billion, up 9.0% YoY to $1.7 billion
  • Net income grew 10.2% YoY to $1.1 billion from $1.3 billion
  • Operating cash flow grew 29.8% YoY to $7.4 billion from $5.7 billion
  • Free cash flows $2.2 billion

Dividend Strength & Outlook
UPS declares an annualized dividend of $3.12 per share, yielding 3.09% at a payout ratio 57%. The company paid nearly $670 million in dividends, a 6.8% YoY increase, whereas its dividend growth since 2000 is 358.8% or 22.4% annually. Moreover, it has repurchased 6.8 million shares for approximately $680 million. Analysts estimate an average EPS of $6.29 through 2018, up 15% from current EPS $5.49 and an average dividend of $3.32 per share, up 6.0% from current dividend per share $3.12. This will yielda a payout ratio around 53%.

Stock name Dividend Yield
United Parcel Service 3.14
Fedex 1.51

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