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The Best Dividend Stocks in the Dow Averages

United Parcel Service

Symbol: UPS

Price: $117.52

Market capitalization: $81.0 billion

Annual revenues: $60.0 billion

Estimated 2017 earnings growth: 5.2%

Price-earnings ratio: 19.6

Dividend yield: 2.7%

Known as Brown, for the color of its ubiquitous trucks and the uniforms of their drivers, UPS is a powerhouse not just in the U.S. Only three companies move packages internationally—FedEx (FDX) and DHL are the others—and UPS is by far the most efficient. Plus, overseas revenues are growing faster than in the U.S. From 2016 to 2019, the company expects revenues in the U.S. to rise by 5% to 6% a year, compared with international revenue growth of 6% to 9% annually. It expects earnings to increase by 9% to 13% annually.

Another plus for UPS: It pays a high federal corporate tax rate of 34% to 36%, so it could benefit from tax reform. “It is one of the reasons you could see profit-margin expansion,” says Matt Moulis, manager of the Fidelity Select Transportation Fund, which has UPS as its second-largest holding. Moreover, he says, “a significant portion of the business is recurring, including the shipment of staples and holiday gifts.”

Since going public in 1999, UPS, a member of the Dow transportation average, has lifted its dividend at a 10% annual pace. Expect that to continue. But what about future competition from Amazon, which has been buying cargo planes of late? So far, it seems the e-commerce giant is simply trying to find a way to make on-time deliveries at peak gift-giving times. Still, e-commerce now accounts for more than 40% of UPS business, and investors have to be alert to changes afoot at Amazon. But UPS has shown it can be flexible. To execute “not-at-home” deliveries, it has created 27,000 worldwide access points where customers can pick up their packages.

SEE ALSO: 8 Best 'YARP' Stocks for Dividend Investors

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