Why I’m Buying UPS: 6.6% Dividend Yield and Turnaround Plan

By: Sayan

Published on: Jun 11, 2025

Key Takeaways

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  UPS shares have fallen over 50% from their peak, pushing the dividend yield to a compelling 6.6%.

  
  


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  Slowing volumes, tariffs, and low-margin Amazon business have weighed on revenue and free cash flow.

  
  


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  UPS is cutting low-profit shipments, reducing costs by $3.5 billion, and refocusing on higher-margin segments.

  
  


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  Strong balance sheet, debt reduction, and share buybacks support a sustainable dividend and potential share price upside.

  
  

Why UPS Stock Stands Out for Income Investors

United Parcel Service (NYSE: UPS) has faced headwinds—tariffs, slowing growth, and margin pressure from its largest customer, Amazon (NASDAQ: AMZN). As a result, UPS shares are down more than 50% from their multi-year highs, lifting the dividend yield to an attractive 6.6%. For income-focused investors, that yield alone is eye-catching. But it’s UPS’s ambitious turnaround plan—geared toward growing free cash flow and improving margins—that makes it a compelling buy today.

Concerning Metrics and Cash Flow

In Q1 2025, UPS reported revenue of $21.5 billion, down 0.7% year-over-year. Earnings per share rose 4.2%, yet free cash flow totaled just $1.5 billion—barely covering the $1.3 billion dividend payout for the quarter. Last year’s free cash flow after capital expenditures was $6.2 billion, compared with $5.4 billion in dividends, leaving little cushion.

Profit margins have contracted sharply. UPS’s non-GAAP operating margin fell from 10.9% in 2023 to 9.8% in 2024, and dipped to 8.2% in Q1 2025. Declines in U.S. domestic volume and softness in supply-chain solutions—exacerbated by the sale of Coyote Logistics—have driven this margin squeeze.

A Turnaround Built on “Shrinking to Grow”

A key pillar of UPS’s strategy is reducing low-profit Amazon volumes, which CEO Carol Tomé admits “dilute” domestic margins. UPS plans to cut overall Amazon shipments by more than 50% by June 2026, focusing on higher-value segments such as returns and heavier, long-haul packages.

To support this shift, UPS has launched a $3.5 billion cost-reduction initiative, targeting fewer operating hours, headcount reductions, and facility consolidations. Simultaneously, UPS is doubling down on more profitable verticals—especially healthcare logistics and small-to-mid-sized business shipping.

Last year’s acquisitions of Frigo-Trans and BPL expanded UPS’s European healthcare logistics footprint. In early 2025, UPS agreed to acquire Andlauer Healthcare Group for $1.6 billion, strengthening its ability to handle complex, high-margin medical shipments worldwide.

Financial Strength and Capital Discipline

UPS enters 2025 with a healthier balance sheet. The company paid down $3.8 billion of debt last year, reducing leverage to 2.25× EBITDA. This deleveraging has enabled UPS to repurchase $1 billion of stock in Q1, completing its full buyback plan for the year while capitalizing on depressed share prices.

Capital expenditures for 2025 are budgeted at $3.5 billion—$400 million less than 2024—freeing up cash to support dividends, buybacks, and strategic investments. UPS has a track record of raising or maintaining its dividend annually since 1999, underscoring management’s commitment to returning cash to shareholders.

Income Today, Upside Tomorrow

UPS today offers a rare combination: a high-yielding dividend and a well-defined path to margin improvement and free cash flow growth. By pruning low-margin Amazon volumes and expanding in lucrative sectors like healthcare logistics, UPS aims to boost revenue per package, enhance operating margins, and generate sustainable cash flow.

For investors seeking income and capital appreciation, initiating a position in UPS at these levels makes sense. I’m starting with a modest allocation and plan to scale in as the turnaround gains traction and free cash flow milestones are met.