What UPS actually does
UPS is one of the world’s largest package-delivery companies. It was founded in 1907 in Seattle as the American Messenger Company, and it is headquartered in Sandy Springs, Georgia. Its brown trucks and air fleet deliver parcels in more than 200 countries and territories. The company also operates The UPS Store and supply chain services.
How the business makes money
UPS charges for moving packages: ground and air shipping, domestic and international, plus logistics and freight services for businesses. Profit depends on volume, price and cost. A dense network and high-margin business customers help, while low-margin residential e-commerce volume can dilute profit.
It has a large unionised workforce, so labour contracts are a major cost.
The dividend story
UPS pays a quarterly dividend and has a well-known payout. The yield is usually above the market average, since profits are significant and the company returns a large share of them to shareholders.
A high payout leaves less room if profit falls, so watch the payout ratio and free cash flow. Read our payout ratio guide.
What to keep an eye on
- E-commerce volumes. The size and profitability of large customers matter.
- Labour costs. Union contracts are a significant expense.
- Competition. FedEx, Amazon’s delivery network and others compete on price.
- The economy. Shipping volumes follow business and consumer activity.
Quick take
UPS is a large, cash-generating logistics business with a generous dividend. Its payout is attractive but depends on managing costs and winning profitable volume.