Better Dividend Stock: UPS vs. Ford

Lee Samaha, The Motley Fool

Sat, May 17, 2025, 5:41 PM 6 min read

• Both stocks trade with huge dividend yields, but neither may prove sustainable.

• Ford's EV business is deeply unprofitable.

• UPS is on the right strategic track, but it may be being hamstrung by its dividend.

• 10 stocks we like better than Ford Motor Company ›

Reward matters in investing, but so does risk. It's not hard to see the potential reward for investors in high-yield stocks like Ford (NYSE: F) and UPS (NYSE: UPS). Investors hope to profit from a 7.1% and 6.5% dividend yield, respectively, while waiting for the two companies to turn around their operating performance. Still, what about the risk of both companies cutting their dividends? Here's a look at which company is best positioned when considering reward and risk.

The table below explains the problem well. UPS aims to pay out about 50% of its earnings in dividends, with Ford aiming for 40% to 50% of its free cash flow (FCF) in dividends. Focusing on FCF, it's clear that the initial guidance given by both companies in late January/early February didn't imply much cover for potential dividends in 2025.

UPS plans to pay out $5.5 billion in dividends in 2025. Ford's situation is a bit more complicated, as it pays a regular dividend of $0.15 a quarter and a supplemental dividend of $0.15 in the fourth quarter of 2024. The figure you see below is the total for 2024. These figures imply that Ford could use up to 89% of FCF on its dividend in 2025, with UPS using up 96%.

Fast-forward to early April and the "Liberation Day" tariffs, and the trading and cost environment changed so dramatically that both companies declined to reaffirm or update their guidance. Moreover, UPS management spoke of worse-than-expected declines in average daily volumes (ADV) in February and March and said second-quarter ADV would decline by 9%.

Ford suspended guidance due to potential supply chain challenges, tariff implementation changes, and other potential trade restrictions. In addition, Ford's outlook is challenged, as is UPS', by a decline in consumer confidence due to tariff uncertainty.

The bottom line is that deteriorating trading conditions could force both companies to cut their dividends in 2025, and investors need to be aware of this.

Data source: Company presentations. *Management's guidance for cash dividends in 2025 is $5.5 billion.