Shares of FedEx (FDX 1.23%) slid 21.4% last Friday, marking the worst single-day percentage decline in company history. The sell-off came in response to warnings from CEO Raj Subramaniam that the climate for the package delivery business is swiftly deteriorating.

FedEx's pre-announcement caught the market off guard, particularly when considering that it was just in late June that FedEx guided for fiscal 2023 diluted earnings per share (EPS) of $22.50 to $24.50, which would have been the highest annual performance in company history.

Now, FedEx is guiding for first-half fiscal 2023 diluted EPS of just $5.98. This signals that the company isn't merely missing a record performance but is on track to post lower diluted EPS than in fiscal 2022 or 2021. 

Despite the bad news, there is a silver lining for FedEx: its dividend yield. But is that enough to justify buying the stock now?

A person stacks golden coins on top of gold, black, and grey hexagons.

Image source: Getty Images.

An all-time high dividend yield

With a forward annual dividend of $4.60 per share and a stock price of roughly $157 per share, FedEx now has a forward dividend yield of 2.9%, the highest in company history. FedEx stock briefly had a dividend yield of 2.9% on March 16 during the COVID-19 panic sell-off.

FDX Dividend Yield Chart

FDX dividend yield. Data by YCharts.

The company has never been known to have a high yield -- that is, until its stock sold off heavily just months after its largest dividend increase in history.

After a record year in fiscal 2021 and an excellent follow-up performance in fiscal 2022, FedEx initiated a record dividend increase. On June 14, it announced a 53% jump in its quarterly dividend from $0.75 per share to $1.15 per share. At the time of the announcement, the stock price was much higher, so the yield was still around just 2%.

The company has announced no plans to cut its dividend. If anything, it is likely to scale back on its share buybacks and not raise the dividend in fiscal 2023. FedEx isn't known for consistently raising its dividend, so investors shouldn't expect sizable raises.

However, this isn't too big of a deal as the yield is already fairly high, and the company could use retained earnings to grow its business, especially if package delivery volumes continue to slow. 

Is the high yield enough?

FedEx shareholders are looking at a mixed bag that includes lower earnings, a higher dividend yield, and a reasonable valuation with a forward price-to-earnings ratio that is still under 15 (assuming the company earns just $11 in fiscal 2023 diluted EPS). But it's important to remember that it is a cyclical business whose performance tends to ebb and flow with the broader economy.

The business performed incredibly well during the worst of the pandemic when so many other industrial companies were posting multiyear-low results. FedEx's main issue is that it misled investors with lofty earnings expectations for fiscal 2023. The economy has clearly worsened faster than management expected. But even then, its guidance of $5.98 in diluted EPS for the first half of fiscal 2023 isn't too bad relative to past years.

For context, FedEx earned $7.97 in diluted EPS in the first half of fiscal 2022 and $9.26 in the first half of fiscal 2021. So there's no doubt that earnings are trending down. However, it earned $4.97 in diluted EPS in the first half of fiscal 2020 and $6.60 in the first half of fiscal 2019.

Also, keep in mind that the stock price is lower now than it was five years ago. This is all to say that FedEx's earnings forecast for the first half of fiscal 2023 might look atrocious relative to the record years in fiscal 2022 and fiscal 2021. But zooming out, it is in line with the five-year upper and lower bound for the first half of the fiscal year. 

For investors who are optimistic about the long-term growth in global package delivery, picking up shares of FedEx near the 52-week low makes a lot of sense, especially given the 2.9% dividend yield.