Is the FedEx Dividend Increase Enough?

Dividends are a way of rewarding investors for holding on to a company’s stock over time. As the share price increases, it would only make sense for the dividend to increase as well. FedEx Corp. (NYSE: FDX) made a move regarding its dividend, but is it really enough to move the needle in its favor?

The company announced that its board of directors declared a quarterly cash dividend of $0.25 per share. This translates to an annualized dividend of $1.00, an increase of 25% from the previous level of $0.80 annually.

Overall this increase in the dividend works out to a yield of 0.56%, compared to current prices. The payout ratio is also 11.2% compared to current earnings estimates. There are consensus estimates from Thomson Reuters of $8.94 in earnings per share (EPS) and $47.66 billion in revenue for the full year.

FedEx provides customers and businesses worldwide with a broad portfolio of transportation, e-commerce and business services.

FedEx’s direct competition, United Parcel Service Inc. (NYSE: UPS), has a much higher annualized dividend at $2.92. The dividend yield for UPS is also higher at 2.9%. It has a payout ratio of 56.3%, compared to the current full year consensus estimate for EPS of $5.19.

Alan B. Graf Jr., executive vice president and chief financial officer of FedEx, said:

Increasing our dividend reinforces our commitment to drive value for shareowners. Our balance sheet and cash flow generation are very strong, allowing us to strategically invest in long-term, profitable growth while also rewarding our shareowners by raising our dividend by 25%.

If investors were looking for a company to invest in purely due to the dividend, UPS easily would be the winner between these two companies. It does not appear that FedEx’s dividend increase was even close to enough to truly move the needle in its favor.

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Shares of FedEx closed Monday down 1.3% at $179.89, in a 52-week trading range of $138.30 to $183.51. The stock has a consensus analyst price target of $194.29.

UPS shares closed Monday down 1.2% to $99.27. The consensus analyst price target is $109.18, and the 52-week trading range is $94.05 to $114.40.

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