Package delivery leader UPS and defense contractor Lockheed Martin are both presenting dividend yields that exceed the S&P 500’s 1.3% yield. Determining which is the superior value stock requires an analysis of various financial metrics.
In the long-term perspective, UPS appears to be a more economical option, though Lockheed Martin holds an advantage in the short term. UPS presents a lower price-to-earnings (P/E) ratio but has a higher price-to-free-cash-flow (P/FCF) ratio compared to Lockheed Martin.
Concerns for UPS include signs of weakness from various transportation and industrial companies, such as 3M and United Airlines. This weakness may relate to uncertainty from tariffs imposed by former President Donald Trump. A reduction in package deliveries could impact UPS’s earnings and cash flow, potentially endangering its ability to sustain a $5.5 billion dividend, which yields 5.6% as per recent pricing. The company’s expected earnings are currently not enough to adequately cover this dividend.
Conversely, Lockheed Martin’s dividend, which yields 2.8%, is well supported by its earnings per share projections, with a substantial $176 billion backlog bolstering its earnings stability. Therefore, Lockheed Martin is considered a more favorable choice for near-term investment.
A comparison of financial metrics reveals:
– UPS is estimated to have earnings per share of $7.87 in 2025 with a P/E ratio of 14.6, free cash flow of $5.7 billion, a P/FCF ratio of 17.1, and dividends per share of $6.56, resulting in an earnings-to-dividend coverage ratio of 1.2 times.
– Lockheed Martin is expected to achieve earnings per share of $27.22 in 2025 with a P/E ratio of 16.2, free cash flow of $6.7 billion, a P/FCF ratio of 15.4, and dividends per share of $13.2, with an earnings-to-dividend coverage of 2.1 times.
In the longer term, UPS is positioned for growth by targeting healthcare and small-to-medium-sized enterprises. Additionally, the strategy to reduce Amazon’s shipping volume by 50% by the end of 2026 could enhance profitability by eliminating low-margin deliveries.
However, the defense sector faces potential hurdles as reports suggest Defense Secretary Pete Hegseth favors reducing the defense budget by 8% annually over the next five years, which could impact the long-term prospects for defense firms such as Lockheed Martin.
