1 Incredible Reason to Buy UPS Stock Before July 29
Based on the company's existing guidance (pre-tariff announcements), its free cash flow in 2025 will barely cover its dividend payment.
The market appears to be implying considerable doubt about the sustainability of the dividend.
Cutting the dividend could be a catalyst for stock outperformance.
10 stocks we like better than United Parcel Service ›
Should you buy stock in a company with a good chance of missing its full-year guidance and one that could cut its much-admired dividend (currently yielding 6.6%)? Usually, that's the last thing investors should want to do. But in the case of UPS (NYSE: UPS) and its upcoming second-quarter earnings announcement on July 29, it makes sense. Here's why.
The market doesn't believe UPS will sustain the dividend
UPS's dividend yield is 6.6%, and the 10-Year Treasury yield is about 4.5%. Outside of the COVID-19-led crash in 2020, there's never been a period when the spread between UPS yield and the risk-free rate was this high.
Data by YCharts
This is the market's way of indicating that it believes the dividend is at risk and may well be cut.
A silver lining
But here's the thing: A dividend cut might just be what the company needs. As previously articulated, UPS has excellent underlying growth prospects from investing in its healthcare, and small and medium-sized business revenue. In addition, the plan to reduce low or even negative margin deliveries for Amazon by 50% from the start of 2025 to mid-2026 makes perfect sense for a company focused on maximizing profitability in its network.
It would free up cash for investment in these activities, as well as ongoing investments in technology to improve its network -- they could even be accelerated. It would also reduce the uncertainty surrounding the stock and encourage investors to focus on its growth opportunities, rather than stressing about the sustainability of its dividend.
As counterintuitive as it may sound, if UPS is forced to cut its full-year guidance over concerns about raised tariffs and trade conflicts, then reducing the dividend could be a positive move; and investors should, at the least, monitor events closely even if they don't plan on buying in before the earnings report.
Should you invest $1,000 in United Parcel Service right now?
Before you buy stock in United Parcel Service, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and United Parcel Service wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $652,133!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $1,056,790!*
Now, it's worth noting Stock Advisor's total average return is 1,048% — a market-crushing outperformance compared to 180% for the S&P 500. Don't miss out on the latest top 10 list, available when you join Stock Advisor.
See the 10 stocks »
*Stock Advisor returns as of July 15, 2025
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