Investors in United Parcel Service (NYSE: UPS – $106.56) are probably still reeling from a late January selloff in the stock after the company’s fourth quarter earnings report. But they should be feeling better after the package delivery giant increased its dividend to $0.83 a share, up from $0.78. The 6% hike brings its current dividend yield to 3.1%. UPS’s dividend is supported by the company’s solid free cash flow and healthy balance sheet. The company has a long history of growing its dividend, which the company believes is a priority use of capital thus providing a strong return to shareholders. UPS has more than quadrupled its dividend since 2000 and the payouts should continue to grow to late decade at an 8% annualized clip.
UPS will see increasing domestic volumes in 2017, and an international mix shift toward slower delivery modes is likely to be largely offset by higher volumes. The impact of potential trade restrictions remains a wildcard for the company, but I am holding on to the high-quality shares for now.