United Parcel Service Inc. (UPS) currently offers a dividend
yield in excess of 3%. Moreover, it is also available at a valuation that is
slightly below historical norms. The company has provided a stable and growing
dividend since it went public in 1999. However, the company did keep their
dividend the same for fiscal years 2001 and 2002, but they did not cut it.
Additionally, 2008 included five dividend payments due to a change in their
dividend payment schedule. Nevertheless, their dividend growth rate since 1999
has averaged 13% per annum, but the dividend growth rate has slowed somewhat to
8.2% per annum since 2013.
United Parcel Service Inc. carries an A+ credit rating from
S&P but does have a debt to capital ratio of 75% – which I consider a
concern. However, the company generates significant revenues and produces ample
cash flows to service and eventually retire its debt. Moreover, a significant
portion of their debt is long-term, which does moderately alleviate my
concerns. But more importantly, the debt they have recently taken on was used
to fund numerous acquisitions since 2014 and to expand international services
significantly. I see the latter as a huge opportunity that should bear fruit
over the longer run.
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