Matt DiLallo, The Motley Fool

Wed, Jun 11, 2025, 1:34 AM6 min read

• Shares of UPS have been cut in half in recent years.

• That slump has driven up the logistics giant's dividend yield.

• It has a plan to turn things around, which includes shrinking its volumes to grow its free cash flow.

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UPS (NYSE: UPS) has struggled in recent quarters due to a challenging market environment and other issues. Tariffs, slowing economic growth, and low margins on volumes from its largest customer, Amazon (NASDAQ: AMZN), have impacted the leading global logistics company's revenue and cash flow, which has, in turn, weighed on its share price. Shares are down more than 50% from their peak a few years ago. That slump has driven its dividend yield up to 6.6%.

For an income-focused investor like myself, UPS' big-time dividend yield is very appealing. However, that's not the main reason I'm buying shares of the beaten-down logistics giant. I think this leader can turn things around, which should boost its financial results and share price. That would also hopefully put its high-yielding payout on a more sustainable level. I think the company's combination of income and upside potential could add up to a robust total return in the coming years as UPS executes its turnaround plan.

UPS is facing a barrage of headwinds. Tariffs have created a lot of uncertainty, which has impacted shipping volumes. The company's revenue declined by 0.7% in the first quarter to $21.5 billion. While its earnings increased by 4.2% per share, free cash flow was only $1.5 billion. That was barely enough to cover its dividend payment of $1.3 billion in the quarter. The company also had a fairly tight dividend payout ratio last year ($6.2 billion in free cash flow after capital expenses versus $5.4 billion in dividend payments).

A big issue is a decline in the company's profit margin. Its non-GAAP operating margin slumped from 10.9% in 2023 to 9.8% last year. It was down to just 8.2% in 2025's Q1, though that was a slight improvement from 8.2% in Q1 2024. The company experienced a decline in shipping volumes in its U.S. domestic business and weakness in its supply chain-solutions operations, with the latter due partially to the sale of Coyote Logistics last year.

One issue plaguing UPS is its relationship with Amazon. CEO Carol Tome commented on the company's relationship with the e-commerce giant earlier this year: "Amazon is our largest customer, but it's not our most profitable customer. Its margin is very dilutive to the U.S. domestic business."