Investors seeking high-yield stocks often look toward companies like Ford and UPS, which offer dividend yields of 7.1% and 6.5% respectively. However, the potential for future dividend cuts poses a significant risk, as both companies face challenging economic conditions. This article evaluates which company is better positioned in terms of reward and risk, considering the possibility of dividend reductions.
Dividend Concerns for Ford and UPS
The central issue for both Ford and UPS is the sustainability of their dividend payouts. UPS targets a payout of approximately 50% of its earnings in dividends, while Ford aims for 40% to 50% of its free cash flow (FCF). As of early 2025, Ford might use up to 89% of its FCF on dividends, whereas UPS could use 96%. These figures suggest that any deterioration in cash flow could lead to dividend cuts.
Changing Economic Conditions
In early April, both companies refrained from updating their financial guidance due to a shift in trading and cost environments, impacted by tariffs and declining consumer confidence. UPS reported a greater-than-expected decline in average daily volumes (ADV), with forecasts indicating a 9% drop in the second quarter. Similarly, Ford suspended its guidance due to ongoing supply chain issues and trade uncertainties.
Strategic Challenges and Opportunities
Ford’s main strategic challenge is transitioning from internal combustion engine vehicles to electric vehicles (EVs). Despite some progress, Ford’s EV division incurred significant losses, raising doubts about its ability to compete with industry leaders like Tesla. The company must navigate a competitive landscape while improving operational efficiency.
Conversely, UPS appears to be on a more favorable strategic trajectory. By shifting its focus from low-margin business-to-consumer deliveries to higher-margin sectors like small and medium-sized businesses (SMBs) and healthcare, UPS aims to enhance profitability. The company’s investments in technology and automation are expected to improve productivity and cost-efficiency.
Growth Prospects and Market Adaptation
UPS’s growth strategy includes expanding its healthcare logistics operations and increasing its share of SMB deliveries. Despite near-term challenges, UPS’s SMB segment grew to 28.9% of its U.S. volume in 2024, with plans to reach 40% over time. In healthcare, UPS aims to double its revenue to $20 billion by 2026, supported by strategic acquisitions and organic growth.
In comparison, Ford faces a more uncertain path, with increased competition in the EV market and the looming threat of Tesla’s robotaxi launch. The company’s focus on long-term strategic goals may not provide immediate relief in the current economic climate.
Investment Considerations
When evaluating which stock to hold for the long term, even in the event of a dividend cut, UPS appears to be better positioned. Its strategic initiatives and focus on high-margin sectors offer a more promising outlook compared to Ford’s ongoing challenges in the EV market. While both companies face near-term risks, UPS’s adaptability and growth strategy provide a more compelling investment case.
Note: This article is inspired by content from https://www.fool.com/investing/2025/05/17/better-dividend-stock-ups-vs-ford/. It has been rephrased for originality. Images are credited to the original source.