Leading package delivery company, United Parcel Service Inc. (UPS - Analyst Report) announced a dividend increase for its outstanding Class A and Class B shares. The board of directors announced an increase of 8.1% to 67 cents per share payable on Mar 11, 2014 to shareholders of record on Feb 24. According to the press release, the dividend growth is backed by solid cash flows of the company.
UPS continues to return cash to shareholders in the form of increased dividends and share repurchases. In Feb 2013, the company raised the dividend on its outstanding shares by 8.8%. In the same month, the company also announced a share repurchase program of $10 billion.
Apart from a strong balance sheet position, we believe the company possesses solid revenue generating capacity to support its investment plan and shareholder returns. These revenue drivers include raise in shipment rates and enhanced product offerings.
In terms of freight rates, the company increased rates for Ground, Air and International, and Air Freight within the U.S., Canada, and Puerto Rico and between these markets by 4.9% for 2014. The rate hikes remain a key driver for the company’s yield expansion in the current market scenario of low demand trends, which would ultimately propel profitability going forward.
Further, the company launched a new shipment monitoring and risk management solution – UPS Proactive Response(TM) Secure – in 2013. The new service – that is available throughout the U.S. and Puerto Rico, and to outbound ships from the U.S. to the European Union and Switzerland – will make sure that time and temperature sensitive products reach their destined places.
Additionally, UPS announced the expansion of UPS Worldwide Expedited service to more than 220 countries from the current 145 destinations. UPS Worldwide Expedited includes air service for international shipments and provides delivery within two-to-five working days. This would facilitate UPS’ customers with cost effective freight solutions across continents.
However, we are concerned about volatile economic conditions that continue to restrict market demand. Further, the company is also exposed to unionized workforce and intense competition from other freight carriers like FedEx Corp. (FDX - Analyst Report) Radiant Logistics, Inc. (RLGT - Snapshot Report) and Expeditors International of Washington Inc. (EXPD - Analyst Report).
UPS currently has a Zacks #3 (Hold) Rank.