In the first third of 2022, the S&P 500 fell by 13.3% and the Nasdaq Composite suffered a painful 21.2% decline. Investors felt the pain and market volatility is on the upswing amid uncertainty about whether rising interest rates will be enough to slow down inflation.

However, there are some companies that have shown impressive resistance to inflation. United Parcel Service (UPS 0.66%) is one that stands out as a safe dividend stock with a fair degree of upside potential, too. Down 20% from its all-time high, which it hit in February, and sporting a 3.4% dividend yield, here's what makes UPS a great stock to buy in May.

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Excellent leadership

I've said it before and I'll say it again: Carol Tomé is one of the best Fortune 500 CEOs. She took the helm of UPS in March 2020, right in the gauntlet of peak panic during the COVID-19 pandemic. Since then she has navigated the crisis beautifully, with excellent results for UPS.

UPS had a record year in 2020, and then set new records in 2021 amid a resurgence in business-to-business volume paired with the core strengths of UPS' business to consumer, international, and freight units. UPS admitted that its growth was naturally going to slow in 2022, but so far the company is outdoing itself, with first-quarter consolidated revenue up 6.4% over the previous year, and it has kept its full-year 2022 guidance despite inflation pressures. 

The guidance includes consolidated revenue of $102 billion, which would be an all-time high, an adjusted operating margin of 13.7%, which would be a 10-year high, and a return on invested capital of at least 30%, which is far above its historical average and would be the second-highest of all time, behind 2021. In short, UPS is growing slower in 2022 than in 2021 and 2020. But its business remains well run and extremely profitable despite being much larger today than it was just a few years ago.

Keeping pace with inflation

In November, UPS announced a price hike of 5.9% to combat inflation, and it's clearly helping. For Q1 2022, UPS grew revenue by 6.4% compared to Q1 2021, and adjusted diluted EPS was up 10.1%. UPS' Q1 2022 operating profit was up 12.1% year-over-year on an adjusted basis, and all three of its segments posted adjusted operating margins of 11% or higher. The fact that UPS reaffirmed its target for a 10-year high operating margin in 2022 is incredible considering the weak guidance we are seeing from other industrial companies.

For example, Caterpillar (NYSE: CAT) posted impressive revenue growth but declining margins as demand and price increases have so far been unable to offset rising costs. Even as inflation reached its highest level in over 40 years, UPS proved that its investments in efficiency and price increases were strong enough to continue growing its operating margin.

Reliable passive income

UPS announced a goal to repurchase $2 billion of its own stock in 2022, a shareholder-friendly move that comes in addition to its $1.52-per-share quarterly dividend. Keep in mind that UPS raised its dividend by 49% in Q4 2021 -- which is something you almost never see from companies the size of UPS.

UPS said it is targeting $5.2 billion in 2022 dividend payments. Its dividend cost the company $1.3 billion in the first quarter, so it would hit $5.2 billion with no increase this year.  

To put the 49% dividend raise into context, consider that Coca-Cola, Johnson & Johnson, and Procter & Gamble, which are all Dow Dividend Kings -- meaning they have raised their dividends annually for at least 50 years in a row -- raised their dividends by 18.9%, 34.5%, and 32.4%, respectively, over the last five years. What's more, the average yield of those five stocks is just 2.5%; none of them has as high of a yield as UPS. I would also argue that UPS has more upside than those three companies given its growth rate, industry leadership, and the long-term growth of the e-commerce industry.

One of the most important qualities of a reliable dividend stock is the ability to pay the dividend using free cash flow (FCF). UPS is spending about half of its free cash flow on its dividend, so the dividend is not in danger. The company has money to pay the dividend, buy back shares, reinvest in the business, and pay down debt.

A quality company with a bright long-term future

Not all passive income is created equally, particularly in a bear market, when stock prices seem to just keep going down. With UPS, an investor can be confident they are investing in a massive business with upside potential that continues to produce record numbers. UPS is at the top of its game, and it is rewarding shareholders through its dividend and through stock buybacks.

Investing in a consumer goods companies might bring you more safety in a recession, but when you combine UPS' 3.4% yield with its high operating margin, strong FCF generation, impeccable management, and the growth ahead of it, UPS takes the cake as the best all-around dividend stock to buy in May.