United Parcel Service (UPS) is the world’s premier package delivery company and a leading provider of global supply chain management solutions serving customers in more than 220 countries and territories, observes Ingrid Hendershot, money manager and editor of Hendershot Investments.
UPS operates one of the largest airlines and one of the largest fleets of alternative fuel vehicles under the global UPS brand. In 2021, UPS delivered an average of 25.2 million packages per day, totaling 6.4 billion packages during the year.
This included more than 1.1 billion COVID- 19 vaccine doses in over 110 countries around the world with 99.9% on-time delivery. Global demand for UPS’s end-to-end delivery services is expected to remain high, rooted in favorable e-commerce trends.
UPS has constructed an immense international transportation network interconnected with one of the largest technological infrastructures in commercial history, unlikely to be replicated by many. Economies of scale, excellent customer service, a strong, trusted brand and operating efficiencies translate into high profitability for the firm.
UPS has a flexible capital allocation strategy which allows the company to reinvest in its business, make dividends a priority and take a balanced approach to share repurchases. Since going public in 1999, UPS has delivered parcel loads of free cash flow to shareholders via dividends and share buybacks.
The firm maintains ample liquidity and a solid financial condition. UPS ended the latest quarter with $12.5 billion in cash and investments, $19.7 billion in long-term debt and financial leases and $15.4 billion in shareholders’ equity.
UPS affirmed its 2022 full-year financial targets with revenue of $102 billion expected with operating profit margins of 13.7% and return on invested capital above 30% for the year.
UPS plans to pay about $5.2 billion in dividends and doubled its share repurchases for 2022 to a target of $2 billion, reflecting management’s confidence in its financial outlook and position. The stock currently yields a hefty 3.6%.
Long-term investors should consider packaging up UPS for their portfolio. UPS is a high-quality market leader with strong cash flows, a hefty dividend and poised to deliver future long-term growth.