Since it is election season, voters and investors who closely monitor the intersection of financial markets and politics are being inundated with political prognostications often conveyed in “leans/likely/D/R” form.
Essentially, those predictions are pundits’ way of saying that a particular result is likely to occur in a specific electoral contest. Sometimes, “probably” is as good as it gets, and that’s relevant when addressing the often-discussed fate of the UPS (NYSE: UPS) dividend.
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UPS’s dividend is probably going to get through 2027, but that’s not a “buy” signal. Image source: Getty Images.
It’s not a stretch to say that the most-discussed items related to UPS stock are the fate of the payout, the 6.7% yield (as of Friday, Oct. 16), and the company’s decision to move away from high-volume, low-margin Amazon deliveries.
So, with transportation and logistics already freezing payouts earlier this year, halting a 16-year streak of dividend increases, investors want clarity and definition. Barring a definitive announcement on the dividend from UPS, “probably” carries the day, which is to say the payout will likely remain frozen for the remainder of 2026 and 2027. That doesn’t make the stock a “buy.”
Surviving isn’t the same as thriving
An admittedly intangible factor may be a sign that UPS’ dividend survives through 2027. That factor is competition. Smart management teams at dividend-paying companies know there’s competition for investors’ cash and that dividends, particularly the safe, growing variety, are a source of attraction for that capital.
With 10- and 30-year Treasury yields both north of 5% and those bonds likely offering significantly less risk than UPS shares, a dividend cut or suspension by the industrial company could easily spark a swift sell-off.
UPS and its dividend aren’t just competing with bonds. Consider the Dividend Aristocrats® (the term Dividend Aristocrats® is a registered trademark of Standard & Poor’s Financial Services LLC), which are the S&P 500 companies with a minimum payout increase streak of 25 years. More than 21% of those stocks hail from the industrial sector. So if UPS becomes a dividend offender, investors have plenty of options in the same sector to transition to.
Combine Treasury yields and the abundance of other, more reliable dividend growth options in the industrial sector, which are factors likely not lost on UPS management, and the package delivery giant may be compelled/obligated not to embrace negative action next year. Yes, that’s not surviving, but no, it isn’t thriving, either.
UPS dividend safety is questionable
Just as surviving and thriving aren’t the same, surviving and being safe are also two very different things. In 2025, UPS generated $5.47 billion in free cash flow, with $5.4 billion of that sum directed to covering the dividend. The problem is that the figure is projected to fall to $5.05 billion this year and $5.01 billion in 2027, implying that the company is increasingly burdened by its dividend obligations.
That doesn’t mean a cut or suspension is imminent, but those numbers don’t scream “dividend safety.” Nor does an estimate of the dividend sapping 98% of 2026 free cash flow.
Risk-tolerant investors mulling positions in UPS ought to consider history. From 2007 through mid-2025, 60% of dividend cutters came from the group of stocks with the highest payout ratios, and a quarter of those names were in both the highest payout ratio and highest dividend yield groups. As of Friday, Oct. 16, just 10 members of the S&P 500 sported dividend yields north of 6%. UPS is one.
To top it all off, UPS is contending with headwinds from rising competition and high fuel prices, potentially setting the stage for disappointing quarterly results. So while UPS’ dividend may make it through 2027 unscathed, investors can find more safety with less stress in the industrial sector, and that may be the course of action to take.
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Todd Shriber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends United Parcel Service. The Motley Fool has a disclosure policy.
