UPS’s $5.4 Billion Dividend Bill Exceeded Its Free Cash Flow. Is the Payout at Risk?
Four stocks are paying out billions in dividends that their cash flows can barely support, and the gap between what investors expect and what the business can actually deliver keeps widening. Before the next declaration date, you need to see…
A yield above 6% looks like a gift to anyone living off portfolio income, until the company can no longer fund it. United Parcel Service (NYSE:UPS | UPS Price Prediction) paid $5.398 billion in dividends in 2025. Its operating cash flow minus capital spending came to $4.765 billion. A high yield is only as good as the cash behind it, and that gap is what income investors need to check.
The test is simple: a dividend holds up when the right earnings measure covers it, free cash flow pays for it, and the company isn’t borrowing or selling stock to fund it. If a company fails two of those three, the payout deserves a hard look.
United Parcel Service (UPS): A 6% Yield Eating Most of Its Cash
UPS pays $1.64 per quarter, or $6.56 annualized. The yield is about 6.0% at $109.25. Dividends have stayed flat for the latest seven ex-dividend dates, and the shares are down 34.97% over five years. Much of the yield comes from the falling share price.
On trailing GAAP EPS of $5.38, the payout ratio is roughly 122%. Even against forecast adjusted EPS of about $7.28, it is about 90%. Planned dividend payments of ~$5.4 billion would take up about 88% of forecast free cash flow of ~$6.1 billion. That leaves little room as transformation costs of $1.4 billion to $1.6 billion continue through Q4 2027. U.S. domestic average daily volume slipped from 16,150 to 15,621 thousand pieces, and cash fell from $5.887 billion to $4.653 billion over six months.
The bull case is pricing: U.S. revenue per piece rose 6.1%, and third-quarter adjusted EPS of $1.69 beat the $1.62 estimate. Watch next: whether fourth-quarter cash flow hits the $6.1 billion target, and what the board does with its next dividend declaration.
Pfizer (PFE): A Dividend Promise Outrunning GAAP Earnings
Pfizer (NYSE:PFE) pays $0.43 quarterly, or $1.72 per year. That’s a yield near 5.6% even after a 29.48% year-to-date rally. In August, the CEO said “the dividend will be maintained” even under “the most stretched scenarios.”
Cash is what pays dividends. Trailing diluted EPS of $0.76 implies a GAAP payout ratio of about 226%. In 2025, operating cash flow minus capex totaled $9.076 billion against $9.771 billion in dividends. In the June quarter, operating cash flow was $835 million versus a $2.451 billion dividend bill. Leverage stands at 2.7x, and management expects it to stay there or go “modestly higher”. Paxlovid revenue fell 63%, and a $3.8 billion impairment followed a Phase 3 failure.
On the plus side, Pfizer raised full-year adjusted EPS guidance to $2.95 to $3.05, which comfortably covers the $1.72 payout. Watch next: cash flow against the dividend as the Eliquis patent loss approaches, and whether leverage keeps climbing.
AGNC Investment (AGNC): A 16% Yield With Almost No Cushion
AGNC Investment (NASDAQ:AGNC) pays $0.12 monthly, or $1.44 a year, which is about 16.6% at $8.67. For a mortgage REIT, GAAP EPS and standard payout ratios mislead. The right gauges are adjusted (distributable) earnings and tangible book value.
Both look stretched. Third-quarter adjusted EPS of $0.37 just covered the $0.36 quarterly dividend. Tangible book equity per share fell 16.9% to $7.13, net interest spread narrowed to 1.86% from 2.00%, and leverage stands at 7.9x. AGNC also issued 97.6 million shares through its at-the-market program. Shares trade at about 1.22x tangible book, so buyers are paying a premium for shrinking capital. AGNC cut its dividend in 2020, from $0.16 to $0.12.
Management says mortgage spreads are near the upper end of their multi-year range, which could help if rate volatility eases. Watch next: fourth-quarter tangible book value and whether adjusted EPS stays above $0.36.
Kraft Heinz (KHC): Cash Covers It, but the Business Keeps Shrinking
Kraft Heinz (NASDAQ:KHC) pays a $0.40 quarterly dividend, a yield near 6.5% at $24.67. Shares have lost 52.97% over 10 years, so much of that yield comes from price erosion.
Cash coverage holds for now. Operating cash flow was $4.462 billion in 2025 against $801 million of capex and $1.898 billion of dividends. The warning signs are in the business itself. A $7.4 billion impairment drove trailing diluted EPS to -$2.87. Second-quarter revenue fell 1.4%, North America adjusted operating income dropped 15.8%, and the planned breakup “remains paused with uncertain timeline.” Kraft Heinz has cut before, from $0.625 to $0.40 in 2019.
Management paid down $1.9 billion of debt in the second quarter, and Emerging Markets grew 10.4%. Watch next: whether organic sales are steady as higher brand spending hits margins, and what happens with the separation.
Yield Alone Is Never a Buy Thesis
When a dividend gets cut, the stock usually falls with it so that income investors can lose both the payout and part of their principal. All four of these stocks still pay today, but each one fails at least part of the coverage test (we laid out the seven signs a high yield is about to be cut in a free report here: Dividend Traps). Before believing any yield, check the cash flow behind it.
Contact [email protected] for any questions or corrections.
Chris Lange is a financial and geopolitical writer with more than a decade of experience covering a myriad of topics. He has published thousands of articles for 24/7 Wall St., with past coverage focused heavily on stocks, IPOs, healthcare, defense, global affairs, and technology.
His work has been quoted, or referenced by a number of outlets including Business Insider, USA Today, Yahoo Finance, MSN, The Motley Fool, and many other publications. A graduate of Southwestern University, he studied business with a focus on investments and has previous experience in banking and startups.
When not reading or writing the news, he is following his passion for Lacrosse, playing chess, or building solar projects with his dad.
