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.