(UPS) United Parcel Services Increases 2012 Dividend

United Parcel Services (UPS) boosted its quarterly dividend by 9.6% to 57 cents per share from 52 cents paid last year. On an annualized basis, UPS’ dividend equates to $2.28 per share compared with $2.08 a year earlier.

The increased dividend is payable March 7 to shareholders of record on February 21. This rise marks a three-fold increase from the introductory dividend of 17 cents per share paid in 2000 and a two-fold hike from the annual dividend paid in 2004.

The move comes two weeks after the company posted outstanding fiscal 2011 earnings of $4.35 per share, up 25% from the prior year, driven by healthy US Domestic, International Packages and freight performances.

UPS is committed to return cash to shareholders in the form of increased dividends and share repurchases. UPS leads the parcel industry in dividend payments, with the current yield being 3% compared with 0.50% yield of its largest rival FedEx Corporation (FDX).

Last year, the company hiked its quarterly dividend by 11% to 52 cents per share from 47 cents. UPS distributed dividends of $1.8 billion in 2010 and $2 billion in 2011. With respect to buybacks, the company repurchased $800 million of shares in 2010 and $2.7 billion in 2011, representing a massive jump.

For 2012, UPS expects its buyback to be level with 2011.Further, the world’s largest package delivery company targets repurchasing stock worth at least $8 billion from 2012 to 2014.

These increased returns are supported by strong cash flows, which provide a solid foundation for the distribution. UPS generated free cash flow of $5 billion last year. In addition, the company’s healthy outlook of 9–15% earnings growth this year encourages our optimism. UPS projects return on invested capital of at least 25% by 2014 and free cash flow to exceed 100% of net income each year.

We are currently recommending our long-term Neutral rating on UPS. For the short term (1–3 months), the stock retains a Zacks #3 Rank (Hold).

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