Two investing adages might seem to contradict each other. Many investors have long followed the maxim to "buy low and sell high." On the other hand, they've also been told: "Don't try to catch a falling knife."
Which of the familiar sayings applies to United Parcel Service (UPS 0.85%)? Shares of the package delivery giant have plunged more than 50% below the high set in 2022. However, I don't view UPS as a "falling knife" to avoid. Instead, I think this ultra-high-yield dividend stock is a great pick for long-term investors to buy right now.
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Why UPS stock is down
When any stock plunges as much as UPS has, it's prudent to understand why. To do that, we need to look back a few years.
After the initial shock of the COVID-19 pandemic, UPS stock went on a tear. The stock skyrocketed nearly 150% between early March 2020 and early January 2022. That's not surprising. With many people working from home and many others trying to minimize contact with people to reduce their chances of getting sick, package delivery volumes rose significantly. UPS beefed up its delivery network operations in response.
The COVID-19 boom was only temporary, though. Once it began drawing to a close, UPS' business slowed down. The company also faced a challenging negotiation with the Teamsters Union. Although a strike was avoided, the ordeal took a toll on UPS' share price. The final agreement with the union also resulted in the company's profits falling.
Another shoe dropped earlier this year, with UPS announcing that it planned to cut its Amazon shipment volume by more than 50% by 2026. UPS stock declined yet again on this news. Amazon ranks as the company's largest customer, accounting for 11.8% of its total revenue in 2024.
Better days ahead?
UPS' earnings are growing again, rising 4.2% year over year in the first quarter of 2025. The higher costs in the Teamsters Union contract were front-loaded. The worst is now behind UPS on that front.
Both U.S. and international revenue are climbing, too. This is notable because the average daily volume associated with Amazon decreased by 16% in Q1 and even ran a little ahead of the company's plan.
UPS CEO Carol Tomé remains convinced that reducing the Amazon business makes sense. She said in the Q1 earnings call: "This volume is not profitable for us, nor a healthy fit for our network. The Amazon volume we plan to keep is profitable and it is healthy volume." UPS' network restructuring related to the Amazon glidedown will cut roughly $3.5 billion in costs this year.
Importantly, UPS is actively working to offset part of the Amazon volume with more profitable shipments. The company is especially focusing on healthcare, international, business-to-business (B2B), and small-to-medium-sized business (SMB) markets. Healthcare presents an especially great opportunity because it tends to be relatively recession-proof and is growing briskly.
Granted, the Trump administration's tariffs create significant uncertainty for UPS and many of its customers. In particular, shipment volumes from China to the U.S. could come under pressure. However, UPS thinks that these lower volumes will be partially offset by increased China-to-non-U.S. shipments and other international-to-U.S. shipments.
Why buy UPS stock now?
Why is UPS a great stock to buy right now? I think there are three key reasons.
First (and most importantly), the company's business will continue to be resilient over the long run. The demand for package deliveries will grow over the next decade and beyond. UPS operates one of the biggest delivery networks on the planet. The prohibitive cost of building such a network gives the company a solid business moat.
Second, UPS' forward dividend yield of 6.58% provides a strong head start for generating attractive total returns. Is the company's dividend safe? I think it's possible that the dividend payout could be cut. However, the focus on boosting profitability could allow UPS to fund dividends at least at current levels.
Third, the stock's valuation is attractive. UPS' shares trade at 14.6 times forward earnings, a historically low level for the company.
Some might view UPS as a "falling knife" to avoid. I believe, though, that buying this beaten-down stock now will pay off handsomely over the next few years.
