Key Takeaways
- UPS yields 7.1% and Target yields 3.1%, and both companies raised their full-year 2026 outlooks this summer.
- UPS paid out 99% of its free cash flow as dividends over the twelve months to June 30, 2026, against 46% for Target over the twelve months to Aug. 1, 2026.
- On consensus estimates, those ratios are 96% for UPS in 2026 and 66% for Target in the year to January 2027.
- Target’s dividend grew 11% a year over the five years to January 2026, and UPS’s grew 10% a year from 2020 to 2025, but their latest raises were 1.8% and 0.6%.
United Parcel Service (UPS) raised its full-year 2026 guidance on July 28. Its shares still yield 7.1%, more than twice the 3.1% that Target (TGT) pays.
Target raised its own sales outlook on Aug. 19, and its smaller dividend has a much wider cushion of free cash flow behind it. For anyone buying for income, that’s a real choice between a bigger check today and a safer one.
So which is the better dividend stock?
| Metric | UPS | Target |
|---|---|---|
| Dividend yield | 7.1% | 3.1% |
| Dividend growth, 5 years | 10.2% a year (2020–2025) | 11.0% a year (years to Jan. 2021–Jan. 2026) |
| Cash dividend payout ratio, TTM | 99% (to June 30, 2026) | 46% (to Aug. 1, 2026) |
| Cash dividend payout ratio, forward | 96% (2026 consensus) | 66% (year to Jan. 2027 consensus) |
| Net debt / EBITDA (LTM) | 1.63x | 1.49x |
| Interest coverage (LTM) | 7.56x | 12.66x |
UPS: a 7.1% yield with almost nothing to spare
UPS finished its planned reduction of Amazon volume in the second quarter of 2026, and Amazon is now about 9% of revenue. Revenue rose 7.6% to $22.8 billion in the quarter. Management then raised its 2026 targets to about $91.2 billion of revenue and $7.22 of adjusted EPS. As CEO Carol Tomé put it on the July 28 call, “this reconfiguration was never the destination. It was the foundation.”
The dividend is where it gets tight. UPS paid out a risky 99% of its free cash flow as dividends over the twelve months to June 30, 2026, and the ratio is 96% on 2026 consensus. Free cash flow fell from $10.8 billion in 2021 to $4.77 billion in 2025, while dividends paid rose from $3.44 billion to $5.4 billion. The dividend outran free cash flow in 2023 and again in 2025.
For 2026, management expects free cash flow of about $5.5 billion against around $5.4 billion of dividends. The 10 analysts’ consensus of $5.64 billion sits close to that guidance. That covers this year’s check, barely. UPS names fuel prices and weak consumer confidence among its risks, and a soft year would leave the dividend short of free cash flow again.
Target: a smaller check, covered twice over
Target pays the smaller dividend, but far more cash stands behind it. Net sales rose 5.3% to $26.5 billion in the quarter to Aug. 1, 2026, on comparable sales up 3.8%. Management now expects full-year sales growth of around 5%. As CEO Michael Fiddelke said in May, “we will not confuse this progress with potential.”
Target paid out a well-covered 46% of its free cash flow as dividends over the twelve months to Aug. 1, 2026. On consensus for the year to January 2027, that rises to 66%, with capital spending expected at about $5 billion. Free cash flow topped dividends paid in every year on the chart except the year to January 2023, when it came in at negative $1.51 billion.
After investing in the business, management says it looks to “support the dividend and build on our more than 50-year record of annual increases.” The main risk is the consumer: management calls the operating environment uncertain.
So which dividend wins?
UPS is the better dividend stock. Its 7.1% yield is too much income to leave on the table while its business is turning up.
$10,000 in UPS pays $710 a year today, against $310 in Target. Both dividends are barely growing right now. Even at those paces (0.6% a year for UPS, 1.8% for Target), UPS would pay about $750 in year 10, a 7.5% yield on today’s cash, against about $364 from Target. At their faster five-year rates, Target’s income still wouldn’t pass UPS’s for more than 30 years. Meanwhile, UPS’s guidance is rising.
Target’s dividend is the safer one. Trailing free cash flow covers it more than twice over, and management clearly works to protect its record of more than 50 years of raises. It’s just that UPS pays more than twice as much, and its cash flow is heading the right way to keep the check coming.
Of course, about $5.5 billion of free cash flow against around $5.4 billion of dividends leaves UPS almost no margin for error. Its next quarterly report is the one to watch.
So what is UPS stock actually worth?
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
