United Parcel Service
But do the strengths of the UPS brand and its size -- $50.4 billion in revenue in its most recent fiscal year, versus $38.2 billion for FedEx -- translate into a smart buy for investors? Let's see.
Good news, bad news ...
The good: UPS has had consecutive dividend increases 10 of the last 11 years -- it was flat from 2008 to 2009, but can you really blame the company there? -- and a five-year dividend growth rate of 6.94%. The dividend is currently at 2.90%, and with a payout ratio of 51%, UPS should have no problem making these payments.
Better yet, UPS is a stable company without the wild share price swings of the broader market. It has a conservative balance sheet showing a long-term debt-to-assets ratio of just 30.36%. The almost $2 billion in free cash flow it posted in its last fiscal year wasn't bad, either.
The bad: Fuel costs. I think it's safe to say that $1-a-gallon gas isn't coming back, and the huge UPS fleet of trucks and airplanes doesn't sip fuel -- it chugs it. Fuel composed 8.1% of the company's operating expenses in the first quarter of 2011, compared to 6.3% for same quarter last year. The company is fighting this by increasing its use of alternative-fuel and hybrid vehicles, but this cloud will be hanging over everybody's head.
Is UPS right for your portfolio?
As for growth, it's hard to see e-commerce losing ground to the brick-and-mortar model -- at least the current one. So for the foreseeable future, I see an increasing army of brown-uniformed men and women delivering more and more packages from Amazon, Zappos, and the like – not just in the U.S., but globally, too. I also think you can say the same for FedEx and other cargo services providers, including Air Transport Services Group
Fellow Fool Rex Moore included UPS in a list of potential "corporate El Dorados" -- companies that share a long history of paying and growing dividends. The best way to take advantage of such a stock is to keep it for the long haul and reinvest those dividends. If that kind of investing whets your whistle, Brown may look good on you.
Fool contributor Dan Radovsky has no position in any of the companies mentioned. The Motley Fool owns shares of United Parcel Service and FedEx. Motley Fool newsletter services have recommended buying shares of FedEx. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.