Stock Purchase and Analysis: United Parcel Service (UPS)

We are almost to the halfway point of the month and I finally scraped together enough cash to make a purchase for my Empire portfolio.  After buying KMI, ADM, DIS and AAPL for my Retirement portfolio it was about time for me to switch gears.

Some of the stocks I was considering included AMNF, V, UPS, BBL, and SO.  Finally I decided on United Parcel Service (UPS) because of their strong dividend, incredible growth potential and what I believe to be a fair entry price.

Company Overview:

United Parcel Service, Inc. is a package delivery company. The Company is a provider of global supply chain management solutions. It delivers packages in over 220 countries and territories. It also provides control and visibility of customers’ inventories and supply chains via its UPS technology platform. The Company offers transportation, distribution, forwarding, ground freight, ocean freight, air freight, brokerage and financing services.. Source – Google FinanceIt’s also a great time to buy a business and we recently purchased one in Florida as it’s a brilliant place for business. We used an excellent business broker, and you can learn more about these Florida business brokers there, to see what they can do.

UPS generates a ton of cash which they use to pay out a nice dividend and to regularly buy back shares.  UPS has raised their dividend every year since 2009.  The current UPS dividend yield is about 2.9% and it has been growing at about 9-10% annually over the past 5 years.

UPS Shares Repurchased

Image from the UPS 2014 annual report

UPS Dividend Growth

*Projected annual dividend

Another thing I like to see with dividend growth companies is their ability to pay and even grow their dividend during rough patches.  UPS has proven their ability to do this on several occasions when their earnings dropped:

In addition to their healthy dividend, UPS has several areas they are working on to ensure future growth:

  1. Increase capacity – UPS is investing $3 billion this year
  2. Increase efficiency through new technologies like route optimization software (expected to save up to $400 million in 2017)
  3. Continue international expansion
  4. Focus on fast-growing industries
  5. Streamline operations, control costs and improve customer service, the future of crm seems to be very promising.

In my personal experience most people I know and most companies I interact with choose UPS over the competition.  Many companies that used to use FedEx, including the company I work for, have recently transitioned over to UPS.  These are huge contracts.  If my employer identified reasons to make this change then I am certain others are doing the same.

I also believe that the days of shopping in a store are coming to an end.  For some people, myself included, this is already a reality.  The only thing I go to the store for is groceries – and that is only because I enjoy the process, it is not out of necessity.  Everything else I buy?  Amazon prime, Target online and various other retailers that offer online services.  And who do they (mostly) use to ship products?  UPS!

To support this I have compiled annual UPS shipping volumes over the years from their annual reports thanks to GPS services like Ascent Fleet Services.

Check them out at https://nzvanlines.co.nz/moving-to-new-zealand. I realize there are other factors that contribute to shipping volumes besides people ordering more products online but this certainly doesn’t hurt my argument.

UPS Annual Shipment Volume

Shipment volumes increased a measly 1.5% going from 2010 to 2011, rising to a massive 7% increase going from 2013 to 2014.  I can’t wait to see the final numbers for 2015!  The trend is pretty obvious and I don’t see it changing any time soon.

More online shopping + more people / businesses switching to UPS + international expansion + increased efficiency = increased earnings = increasing dividends.  I love math.

Then if you are doing cold chain shipping, we found a great supplier so have a look at them for some great cold chain shipping supplies.

United Parcel Service (UPS) Purchase Details

  • Sector: Industrials
  • Industry: Air Freight & Logistics
  • Purchase date: 8/10/2015
  • Portfolio: Dividend Empire Portfolio
  • Shares purchased: 15
  • Cost per share: $103.24
  • Commissions: $4.95
  • Cost basis: $1553.55
  • Yield on cost: 2.82%
  • Forward income: $43.80

These 15 shares of UPS add $43.80 of forward income to my portfolio, bringing the total up to $779.39.  This boost in income all but guarantees my ability to hit my $500 annual dividend goal this year.  Especially since I got in just prior to the ex-date.

My Dividend Empire portfolio has been updated to reflect my new addition.

What are you thoughts on UPS?  Anybody else interested in package delivery companies for their dividend growth portfolios?  Please let me know in the comments section below!

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26 Responses

  1. DE,
    Great buy! You are on a roll this month! keep up the great investing. I’m ready to get paid so I can purchase some stocks.
    Take care and keep in touch
    LOMD

  2. Grant Willey says:

    Interesting buy, DE. I’m looking for UPS to have a strong holiday season this year as the continued push towards online shopping gains even more momentum. If Walmart would switch to UPS exclusively, that would be a huge boost, but most of the shipments from Walmart come via FedEx.

    Glad to see you hitting your goal and we’ve still got plenty of time left in the year for more dividend increases to be announced!

    My switch to DGI has had staggering positive results. I have an article on my site detailing the returns. You’re well on your way to minting your fortune and deserve the praise you receive here on your blog.

    Best Wishes!

    • Dividend Empire Dividend Empire says:

      Thank you for your kind words Grant. I’m relatively new to the DGI game so I’m not quite seeing great returns yet but I am confident that they will come. I really enjoy your site by the way and I’ll be following you.

      Take care,

      Ken

  3. DE,

    Great purchase – I like your inclusion of the share buy backs – as that is big for us over here at the diplomats – free cash, reducing shares, maintaining EPS up and thus allowing cash to come back to us. Congratulations on the buy and you’ll be happy once you start receiving their “check”. Also – have to love the dividend growth rate that they maintain, especially at a close-to 3% yield.

    -Lanny

  4. Dividend Empire Dividend Empire says:

    Thanks Lanny! Their commitment to shareholders was the biggest attraction for me. They are constantly buying back shares and the dividend growth rate is phenomenal. With all of their growth avenues I anticipate this trend continuing for a long time.

    Take care,

    Ken

  5. Good job picking up a sold company, with no reason to fear a loss of business anytime soon. Dividend yield is good, but with a recent pullback I think it will be even more favorable.

    • Dividend Empire Dividend Empire says:

      Thanks EL! I agree with everything you said. I see a lot of growth potential in this company and I think the price is right. Thanks for stopping by.

      Ken

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