Dividend stocks are everywhere, but many just downright stink. In some cases, the business model is in serious jeopardy, or the dividend itself isn't sustainable. In others, the dividend is so low it's not even worth the paper your dividend check is printed on. A solid dividend strikes the right balance of growth, value, and sustainability.
Today, and one day each week for the rest of the year, we're going to look at one dividend-paying company that you can put in your portfolio for the long term without too much concern. This isn't to say these stocks don't share the same macro risks that other companies have, but they are a step above your common grade of dividend stock. See last week's selection.
This week, I plan to highlight shipping juggernaut United Parcel Service
Delivering profits, on cue
Few companies can tell us more about the health of the U.S. economy and global economy than UPS and FedEx
In UPS' latest quarter, we received yet another stable report that showed modest-to-strong growth across all business aspects. Its U.S. business remained its strongest revenue generator, with sales up 6.1% as it continues to feed off of weakness from the United States Post Office, which is closing locations in order to save money. Online revenue rose as consumers continue to shift their mode of business to an Internet platform. In an age of convenience, both UPS and FedEx have done a marvelous job of transitioning for their customer base. Even ground volume rose 4% despite receiving lighter-weight packages. Thankfully, UPS has significant pricing power and was able to drive the average price per shipment higher in ground packages.
If there was one area of weakness for UPS, it was in international sales, which grew by 2.3% but saw average revenue per package fall. UPS blamed the weakness on an increase in global business inventory levels. Given the slowdown we're witnessing in China and Europe's debt malaise, if 2.3% growth is underperformance, I could deal with that sort of underperformance on a regular basis.
Obamacare, NextGen, and green initiatives, oh my!
One of the sneakier growth avenues of late for UPS has actually been health-care logistics -- and yesterday's ruling on the Affordable Care Act may only strengthen this side of the business. According to The Wall Street Journal, UPS is filling orders for 4,000 insulin pumps each day for device maker Medtronic
UPS also has the advantage of using its deep pockets to stand above its peers through its cost-saving actions. It sounds a little confusing, spending more to save money, but it's a smart long-term strategy. UPS has been adding hybrid-electric vehicles to its feel to reduce fuel costs, and it uses a flight technology called NextGen, which lands its planes closer together -- saving minutes of flying (and fuel) time that can add up quickly. That's one reason airlines like US Airways, which doesn't hedge its fuel costs, and trucking company J.B. Hunt Transport Services are more prone to weakness from rising fuel costs, whereas UPS isn't nearly as exposed thanks to its green initiatives.
Shipping you paychecks
Now that you've seen how UPS is driving sustainable growth, let's dive right into the company's juicy dividend potential.
UPS is a relatively young company when it comes to paying a dividend -- having done so since it went public in 1999 -- but it nonetheless has raised its quarterly payout 10 times in the past decade. Have a look for yourself:
Source: Dividata. *2012 amount assumes $0.57 quarterly payout for remainder of 2012.
That's a pretty sight! The best part about this pretty sight is that UPS' current payout ratio of 54% leaves room for continued modest growth of that dividend as long as it keeps plugging along at what it's best at.
Although there are plenty of choices in the shipping sector, UPS stands above the majority of its peers for its pristine pricing power, its green initiatives, and its current 3% yield. FedEx can pretty much go toe-to-toe with UPS on many fronts, but not with regard to dividend yields (UPS 3% versus FedEx 0.6%). As long as the world keeps spinning (barring a Mayan disaster et. al), UPS' profits and dividends should keep flying high.
If you're craving even more dividend ideas, I invite you to download a copy of our latest special report, "Secure Your Future With 9 Rock-Solid Dividend Stocks," which is loaded with income-producing companies hand-selected by our top analysts. Best of all, this report is free, so don't miss out!
Fool contributor Sean Williams has no material interest in any of the companies mentioned in this article. You can follow him on Motley Fool CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
The Motley Fool owns shares of Medtronic. Motley Fool newsletter services have recommended buying shares of FedEx. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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 that's always delivered in a timely manner.