Why I am investing in the firms delivering our parcels

For example, last November I told you about United Parcel Service (UPS) where I paid $95 a share, yielding 6.9 per cent gross income. Since then, the share price has risen to $120, pushing the yield down to 5.6 per cent for buyers today. But there are several reasons this Atlanta-based business — which will trade ex-dividend or without rights to the next income payment from Tuesday — might have further to go.

First, it is the largest company in a growing global market where it helps to be big to cope with small profit margins. UPS has a stock market capitalisation of $100 billion, compared with FedEx’s $86 billion. But UPS shares are priced at less than 18 times earnings, compared with its rival, which trades on a price-to-earnings ratio of more than 20 times, yielding a meagre 1.6 per cent.

Second, this income-seeker likes to buy into profitable businesses that reward their owners with dividends today, rather than promises of “jam tomorrow” like several AI stocks. UPS has increased or at least maintained its dividend every year since its stock market flotation in 1999, compared with 11 years for FedEx.

Better still, shareholders’ pay hikes have been substantial, with UPS bumping up dividends by an annual average of 10 per cent over the last five years, according to LSEG, formerly known as the London Stock Exchange Group. If that rate of ascent could be sustained — which is not guaranteed because dividends can be cut or cancelled without notice — it would double shareholders’ income in seven years.

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To be fair, FedEx has an even more impressive recent record of increasing dividends, having sustained annual averages of 16 per cent, according to LSEG. But that is only one of several factors that need to be weighed in the balance, including the entry points and price-to-earnings ratios mentioned earlier.

Third, while the past is not necessarily a guide to the future, it is some comfort to see that a business has survived shocking setbacks over more than a century. UPS was founded in 1907, so it traded through both world wars and the Great Depression, unlike FedEx, which began business as Federal Express Corporation in 1971.

Against all that, just three months ago Mr Market was more worried about risks facing UPS than potential rewards. These include a history of disputes with its unionised workforce: the International Brotherhood of Teamsters (IBT). This is not the type of trade union with which you would wish to fall out — just ask Jimmy Hoffa, if you can find him. The former president of the IBT, who was alleged to have had links to organised crime, disappeared in 1975. Such mysteries make Britain’s industrial relations seem like a vicar’s tea party.

UPS is engaged in the risky business of what the Yanks might call “conscious uncoupling” from its largest customer, Amazon, which is squeezing payments to suppliers while building its own delivery operations.

This presents an existential threat to UPS but its chief executive, Carol Tomé, is actively diversifying its customer base and cutting costs, including another 30,000 redundancies announced last month, following 48,000 jobs cut from its payroll of 490,000 last year. She said: “Looking ahead, upon completion of the Amazon glide-down, 2026 will be an inflection point in our strategy to deliver growth.”

UPS is the second-largest asset in my Isa, where tax-free income is the priority. However, it wasn’t the only transport business in which I invested last November, as reported here at that time.

AP Moeller-Maersk (MAERSKB) is one of the largest shipping companies in the world, with a stock market capitalisation of 239 billion Danish kroner (£28 billion). Never mind all the excitement about AI, nearly 90 per cent of all international goods trade by volume is transported by sea.

This business has also survived more than a century, spanning many stock market storms and real ones, since its Copenhagen flotation in 1904. The fact that it is still controlled by the founders’ families also offers some comfort for investors who like to see directors with skin in the game.

But worries about American tariffs or taxes on imports do not help. Nor did the closure of the Suez Canal, which used to enable 15 per cent of global goods trade to pass between Asia and Europe without having to sail round the Cape of Good Hope, more than 6,000 miles away. The cumulative effect was to depress Maersk to DK12,432, at which point I piped aboard some risk capital.

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Since then the share price has bobbed up to DK15,440, despite mixed full-year results this month. Freight rates and earnings per share fell, slashing the dividend yield to 3.2 per cent. Danish withholding taxes of 27 per cent do nothing to soften the blow. Fortunately, the capital gain more than offsets the income disappointment but it does serve as a salutary reminder of why I keep repeating that dividends are not guaranteed.

Some Maersk ships have begun to pass through Suez again and the company has been appointed as interim manager of the Panama Canal, following that country’s courts ejecting Chinese interests. This canal enables 5 per cent of global trade to pass between America’s east coast and Asia, without having to sail around Cape Horn, more than 3,000 miles away.

Whether or not Napoleon Bonaparte was right to say “geography is destiny”, it is certainly unchanging in a highly uncertain and changing commercial world. Both Maersk and UPS are likely to experience sustained, if not increasing, demand for their tried and tested ability to deliver goods from one place to another efficiently.

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Neither company’s shares have done as well as new technology stocks in recent years. But both long-established businesses offer reassuring diversification, plus dividends, at a time of rising anxiety about AI’s potential for capital destruction.

Dreams of capital growth can disappear in a puff of smoke — or a bit of bad news from the other side of the world — but dividend income may pay us to be patient. Long-term investors should never forget that a trend is only a trend until it stops.