To attain a yearly dividend income of $5,000 from UPS shares, consider this quantity.
Package Delivery Service Giant (UPS -2.75%) has been facing challenging times over the past couple of years, and as of Wednesday's pricing, the stock has deceased approximately 20% since the beginning of 2023. Nonetheless, the decrease in stock price has consequently boosted the dividend yield to above 5%. This is an appealing yield, yet one might wonder how many shares would be required to yield $5,000 in passive income yearly from this high-yield stock.
$5,000 in Passive Income from Purchasing UPS Shares
At present, the dividend per share is $6.52. To generate $5,000 in passive income next year, investors would need to purchase 777 shares (calculated by dividing $5,000 by $6.52), which equates to an investment of approximately $99,000 based on the recent stock price around $127.
However, investors might not need to buy such an extensive number of shares if UPS also increases its dividend for the 16th consecutive year in 2025. This is more of a potential than a guaranteed outcome.
Management's objective is a dividend payout of around "50% of the prior year's adjusted EPS," as stated in the Investor Day presentation in March. Analysts anticipate adjusted earnings per share of $7.48 in 2024 and $8.75 in 2025. The 50% figure suggests a dividend payout of $3.74 in 2025 and $4.38 in 2026 - a considerable decrease compared to the current $6.52.
What UPS Management Said Regarding the Dividend
Management was questioned about the dividend during the April earnings call. UPS' distribution rate - dividends as a percentage of earnings - currently stands at 87% of analysts' earnings estimates for 2024, and it was also high at that time. CEO Carol Tome stated that the company aims to decrease its distribution rate by boosting earnings, instead of reducing the dividend. "We have no intention of reducing the dividend merely to create compatibility with this calculation," she said. "We'll recover into it, and the dividend is a crucial component of our value proposition."
It's possible that UPS suspends dividend increases for at least 2025 and potentially 2026. Although the assumption that 777 shares will yield $5,000 in passive income looks appealing, it might not be accurate.
If an investor is considering increasing their investment in UPS for the purpose of achieving $5,000 in passive income, they might want to keep an eye on whether UPS maintains its tradition of annual dividend increases.
Given that UPS' CEO has expressed a commitment to boosting earnings rather than reducing the dividend, it's plausible that the company might still increase its dividend in the future, which could potentially reduce the number of shares required to generate the desired income level.
