UPS (UPS 3.14%) has struggled in recent quarters due to a challenging market environment and other issues. Tariffs, slowing economic growth, and low margins on volumes from its largest customer, Amazon (AMZN 0.25%), have impacted the leading global logistics company’s revenue and cash flow, which has, in turn, weighed on its share price. Shares are down more than 50% from their peak a few years ago. That slump has driven its dividend yield up to 6.6%.

For an income-focused investor like myself, UPS’ big-time dividend yield is very appealing. However, that’s not the main reason I’m buying shares of the beaten-down logistics giant. I think this leader can turn things around, which should boost its financial results and share price. That would also hopefully put its high-yielding payout on a more sustainable level. I think the company’s combination of income and upside potential could add up to a robust total return in the coming years as UPS executes its turnaround plan.

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Concerning numbers

UPS is facing a barrage of headwinds. Tariffs have created a lot of uncertainty, which has impacted shipping volumes. The company’s revenue declined by 0.7% in the first quarter to $21.5 billion. While its earnings increased by 4.2% per share, free cash flow was only $1.5 billion. That was barely enough to cover its dividend payment of $1.3 billion in the quarter. The company also had a fairly tight dividend payout ratio last year ($6.2 billion in free cash flow after capital expenses versus $5.4 billion in dividend payments).

A big issue is a decline in the company’s profit margin. Its non-GAAP operating margin slumped from 10.9% in 2023 to 9.8% last year. It was down to just 8.2% in 2025’s Q1, though that was a slight improvement from 8.2% in Q1 2024. The company experienced a decline in shipping volumes in its U.S. domestic business and weakness in its supply chain-solutions operations, with the latter due partially to the sale of Coyote Logistics last year.

Shrinking to grow

One issue plaguing UPS is its relationship with Amazon. CEO Carol Tome commented on the company’s relationship with the e-commerce giant earlier this year: “Amazon is our largest customer, but it’s not our most profitable customer. Its margin is very dilutive to the U.S. domestic business.”

That’s leading the company to significantly reduce its relationship with the e-commerce giant. It plans to cut its shipping volume by over 50% by next June. It’s cutting back on its least profitable business with Amazon, which is lighter deliveries that travel short distances. It plans to keep its more profitable volumes, which include returns and heavier packages shipped longer distances.

The company is undertaking a large-scale, cost-reduction initiative as part of that volume reduction. It aims to cut $3.5 billion in costs this year by reducing operational hours, headcount, and facilities.

Meanwhile, the company plans to focus on growing other, more profitable business lines that are unrelated to Amazon. These volumes include healthcare logistics and those from small and mid-sized businesses. It has been beefing up its healthcare logistics platform via acquisitions. Last year, it bought Frigo-Trans and BPL to bolster its healthcare logistics capabilities in Europe. Meanwhile, it recently agreed to buy Andlauer Healthcare Group for $1.6 billion to strengthen its ability to offer complex healthcare logistics solutions to customers.

The company expects a combination of lower overall volumes related to Amazon, increased revenue per piece elsewhere, lower costs, and lower capital expenses to yield increased returns, higher margins, and more free cash flow. The company’s capital-spending plan is around $3.5 billion this year, down from $3.9 billion last year. That $400 million in savings will give it more financial flexibility as it engineers its turnaround plan.

Meanwhile, the company entered this year with a strong financial position. Last year, it paid off $3.8 billion of debt, lowering its leverage ratio to 2.25 times. The company’s strong financial position gave it the confidence to buy back $1 billion of its stock in the first quarter of this year as it capitalized on the decline in its share price to complete its entire 2025 buyback plan. UPS also raised its dividend earlier this year. It has either maintained or increased its payout every year since going public in 1999.

Income plus significant upside potential

UPS looks like a unique investment opportunity these days. It pays a high-yielding dividend that the global logistics giant should be able to maintain during its turnaround phase. On top of that, it has significant upside potential as it executes its strategy to reduce lower-margin volumes while growing its more profitable volumes. That has me excited to add the stock to my portfolio. While it’s a higher-risk, high-yielding dividend stock, its total return potential is too compelling to pass up. I’m starting with a small position, and I plan to add to it over time.