Should investors be afraid or greedy right now? Warren Buffett has often said the exact opposite.
Buffett has a cash pile of $277 billion. Berkshire Hathaway And there are more stocks to sell than to buy. It seems there’s more fear than greed these days.
I’m the opposite: I recently decided to put some of my cash into investments, specifically buying up shares in major freight and logistics companies. United Parcel Service (NYSE: UPS)I bought this depressed 5.1% dividend yielding stock for three reasons.
1. Signs of recovery
To describe UPS as hurting is probably an understatement: The company’s shares have fallen nearly 20% this year and are down more than 45% from their peak at the start of 2022. But I think UPS is poised to recover.
First, UPS is at an inflection point: Its U.S. volume increased in the second quarter for the first time in nine quarters, and 11 of UPS’s top 20 export countries saw average daily volumes increase year over year, something it has not seen in 10 quarters.
Management expects a return to solid earnings growth in the second half of the year. UPS’s cost structure should improve over the next few years as higher costs related to the company’s labor union agreement negotiated last year are front-loaded.
UPS has resumed Share buybacksIt’s another positive sign: The company plans to buy back about $500 million worth of its own stock over the remainder of 2024, and about $1 billion worth of stock each year going forward.
2. A business that can be sustained for the long term
The COVID-19 pandemic, union negotiations, and Amazon Building out its own shipping operations (UPS’s largest customer) has hurt UPS in recent years, but I believe this is a business that will be built for the long term.
UPS is still pretty strong moat Despite Amazon’s risks, few companies can invest the billions of dollars needed to expand a delivery network that can operate as efficiently as UPS.
I applaud CEO Carol Tomé’s goal to double UPS’s healthcare logistics revenue to $20 billion by 2026. I also applaud her strategy to increase small business volume from 29% to 35% and eventually 40% over that same period. These markets are high margin and should boost UPS’s bottom line.
3. Attractive dividends
UPS’s dividend was also a major factor in my decision to buy the stock, and a dividend yield of over 5.1% gives UPS a head start on delivering solid total returns.
UPS has increased its dividend for 15 consecutive years, and we expect it to continue to grow in the future. The company targets a dividend of about 50% of the prior year’s adjusted earnings per share. It will well exceed this level in 2024, but I think UPS will be able to lower its dividend payout ratio to its target over the next few years.
UPS’s first capital allocation priority is reinvesting in the business, followed by ensuring a stable and growing dividend. Importantly, share repurchases are ranked as the company’s fourth capital allocation priority. With UPS having begun buying back shares again, it’s clear that management is comfortable continuing to pay the dividend, at least at current levels.
Should you invest $1,000 in United Parcel Service right now?
Before you buy United Parcel Service shares, consider the following:
of Motley Fool Stock Advisor The analyst team Top 10 Stocks Here are the stocks investors should buy right now: United Parcel Service wasn’t among them. The 10 stocks selected could generate huge profits over the next few years.
Things to consider NVIDIA This list was created on April 15, 2005…If you invested $1,000 at the time of recommendation, $752,835!*
Stock Advisor With portfolio construction guidance, regular updates from our analysts, and two new stock picks every month, we provide investors with an easy-to-follow blueprint for success. Stock Advisor The service is More than 4 times First S&P 500 recovery since 2002*.
*Stock Advisor returns as of August 12, 2024
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of The Motley Fool’s board of directors. Keith Speights The Motley Fool invests in and recommends Amazon, Berkshire Hathaway, and United Parcel Service. The Motley Fool recommends United Parcel Service. Disclosure Policy.
Why I bought this depressed 5% dividend yield stock Originally published on The Motley Fool
