United Parcel Service (UPS -0.32%) stock fell 14.1% on Jan. 30 after the company reported disappointing fourth-quarter and full-year 2024 results. The stock is now at its lowest level since July 2020.

Dividend raises, paired with a beaten-down stock price, have pushed UPS’ yield up to a mouthwatering 5.9% at the time of this writing. But given the company’s challenges, some investors may wonder if the high yield is too good to be true.

Here’s where UPS went wrong, why the situation could get worse before it gets better, but why UPS is a high-yield dividend stock worth buying now for patient investors.

Image source: Getty Images.

Broken promises

Let’s take a trip back to March 2024. UPS stock was hovering around a three-year low. To regain investor trust, management hosted an investor presentation detailing ways to get the business back on track over the next three years.

UPS had badly overestimated package delivery volumes, thinking that a COVID-19-induced increase in e-commerce would lead to sustained growth. Or, at the very least, consumers would permanently adapt their behavior to incorporate more purchases online. So UPS overexpanded its routes and positioned the business for demand that never lived up to expectations — resulting in lower sales and falling margins.

In its investor presentation, UPS adjusted its 2026 forecast for U.S. small package average delivery volume to 98 million packages compared to early estimates for 108 million packages by 2023. The target implied a much more reasonable 5.5% compound annual growth rate between 2023 and 2026. In the presentation, UPS forecast 2026 revenue of $108 billion to $114 billion compared to 2023 revenue of $91 billion. The idea was to expand revenue in 2024, and then focus more on margins in 2025 and 2026.

Unfortunately, UPS failed to deliver on its promises in 2024. The company grew revenue by just 0.1%, operating margins declined, and adjusted diluted earnings per share fell 12.1%. In other words, UPS is moving in the wrong direction — putting its 2026 targets in jeopardy.

A crucial Amazon update

UPS is already struggling, so it took investors off guard when the company announced a major change to its relationship with Amazon (AMZN -4.05%). Despite Amazon being UPS’ largest customer, UPS expects to cut Amazon volumes by 50% by the second half of 2026. The move could bolster margins but at the expense of revenue. UPS CEO Carol Tomé said the following on the earnings call:

We’ve been partnered to Amazon for nearly 30 years, and we hold that company in high regard. Amazon is our largest customer but it’s not our most profitable customer. Its margin is very dilutive to the U.S. domestic business. Our contract with Amazon came up this year. And so we said it’s time to step back for a moment and reassess our relationship. Because if we take no action, it will likely result in diminishing returns. So we considered a number of different options and landed on what we think is the best option for our company, and that is to accelerate the glide down of their volume with us, as we commented in our prepared remarks by more than 50% by June of 2026.

UPS’ margins have taken a hit, so it’s understandable that the company wants to improve them. But cutting the reliability that Amazon brings to its revenue stream is a controversial move, especially given how vulnerable the business has been in recent years.

UPS is a buy for long-term income investors

UPS has sold off for valid reasons. The company’s sales and margins have declined for a few years now, and 2025 isn’t expected to bring a quick turnaround. UPS is guiding for revenue of $89 billion and operating margins of 10.8% — which would be an improvement from 2024 margins but slightly lower revenue.

Given the state of the business, UPS stock arguably deserves to be at its lowest level in years. The good news is that management has ripped off the proverbial bandage by setting a bleak outlook for 2025.

The stock chart would indicate UPS is a steal at current levels, given the extent of the sell-off. However, investors would be wise to focus on business results rather than using price action as a yardstick for whether the stock is a good value. Given the guidance for 2025, it could take several more years for the turnaround to play out.

In the meantime, UPS’ 5.9% yield is a worthwhile incentive to hold the stock through this difficult period. And the stock’s mere 16.4 price-to-earnings ratio suggests it is a good value, even based on weak trailing earnings results.

Still, investors should only approach the stock if they agree with management’s strategic direction, which could include even more efficiency improvements at the expense of sales. It could be the right decision long term, but the road to get there will be bumpy at best.