There's no such thing as a free lunch, and there's no such thing as a blue chip stock like UPS (UPS +2.14%) yielding 7% without containing a significant amount of risk.
Quite clearly, the market is concerned with the sustainability of the dividend and rightly so, not least as there are reasons to suspect the company could miss its earnings expectations in the quarter and for 2026. Still, even in that case, UPS stock might be a good value.
Why UPS might miss estimates
The doubt around its earnings comes down to three main factors:
- Ongoing elevated fuel costs could pressure profit margins at a company that has raised fuel surcharges over and above its fuel cost increases over the last year or so.
- Potential competition from Amazon (AMZN +0.27%) could negatively impact UPS's volume or pricing.
- Global e-commerce trends don't appear to be favorable to UPS right now.
UPS United Parcel Service
NYSE · As of 4:00 PM ET 10/15/26
Fuel surcharges, Amazon, and delivery volumes
I previously discussed how UPS raised fuel surcharges by a combined $1.173 billion in the first half of 2026, compared to a combined increase in fuel costs and third-party fuel of $744 million, resulting in a net difference of $429 million.
There are other operating costs associated with fuel supply disruptions, so it's probably unfair to argue that the $429 million drops down into the profit line. Still, it's a large number, and given the ongoing high fuel costs, UPS could struggle to pass through fuel surcharges without taking a hit to volume.
Amazon Supply Chain Services was only launched this year, so it might be a bit premature to expect a direct impact on UPS volumes. However, if Amazon is pricing aggressively to win small and medium-sized business (SMB) deliveries from customers it already has in its Amazon marketplace, UPS could increase pricing in one of its core end markets in the U.S.
Image source: Getty Images.
Finally, UPS's recent Global Freight Transportation and Logistics Trends report for the third quarter noted, "While AI-driven demand continued to support the air freight sector, e-commerce demand declined 7% YOY in May 2026, marking its sixth consecutive month of contraction."
The AI-driven demand is probably good news for UPS's premium international and supply chain businesses. Still, the weakness in e-commerce deliveries (partly driven by tariff actions that have made Chinese imports uncompetitive) is not.
Why UPS might still be a good value
Don't be surprised if UPS misses earnings estimates in the third quarter. Moreover, its already lightly covered dividend (Wall Street expects $7.20 in earnings per share in 2026, with the dividend per share $6.56) might even come under threat. That said, Delta Air Lines recently missed estimates and cut full-year guidance due to higher fuel expense expectations, and the stock's modest decline suggests the market was somewhat braced for it.
That might also be the case for UPS. If so, it sets the stock up for a recovery if UPS can merely meet expectations and maintain its dividend. My view is that it won't, and it might make sense to wait for the earnings report first before considering buying the stock.
