2 High-Yielding Dividend Stocks That Are Safer Than They Look

UPS and Verizon each delivered better-than-expected Q4 2025 results and guidance that support their above-average dividend yields: UPS yields ~5.6% (S&P 500 ~1.1%), reported adjusted Q4 EPS of $2.38 versus $2.20 expected, and raised 2026 revenue guidance to $89.7 billion versus $87.9 billion consensus while carrying a payout ratio near 100% that management expects to ease as margins improve; UPS shares are up ~19% YTD. Verizon yields ~6%, has seen shares rise ~15% YTD, posted the strongest wireless subscriber growth in six years and guided 2026 adjusted EPS to at least $4.90 versus $4.76 expected, with a roughly 50% payout ratio and CEO-led profitability initiatives supporting dividend safety.

Analysis

Market structure: Higher visible yields on UPS (5.6%) and VZ (~6%) have drawn income flows away from low-yield S&P names and some fixed income; expect 1–3% short-term inflows into telecom/logistics ETFs and modest outflows from IG duration if yields persist. Winners: VZ (operational leverage, ~50% payout ratio) and premium e-commerce/high-value delivery segments at UPS; losers: low-margin parcel volumes and small-cap couriers. These dynamics will modestly compress credit spreads for VZ but could widen spreads for high-leverage peers if macro softens.

Risk assessment: Tail risks include a >5% global GDP slowdown that cuts UPS volume and pushes its payout ratio above 110%, or a telecom capex shock (spectrum/capex overrun >$3–5bn) that reduces VZ FCF and forces dividend cuts. Immediate (days) risks are sentiment-driven reversals around earnings; short-term (weeks) hinge on Teamsters/operational disruptions and 2–3 Fed meetings; long-term (quarters/years) depend on structural e‑commerce mix and 5G monetization. Hidden dependencies: UPS margins rely on maintaining high-value mix; VZ relies on sustained ARPU gains and low churn.

Trade implications: Favor a modest overweight to VZ for income and stability and a smaller, hedged exposure to UPS for yield capture—size relative to portfolio risk budget. Use cash-covered calls on VZ to harvest yield and buy protective puts or sell OTM puts on UPS to avoid exposure to sudden volume declines; expect holding periods of 3–12 months to confirm guidance beats. Cross-asset: a sustained rotation into high-dividend equities could nudge 2s10s wider by ~5–15bp and lift USD slightly as yield-hungry flows shift.

Contrarian angles: Consensus underestimates operational leverage risk at UPS—a 3–6% pullback in global volumes would make its ~100% payout ratio unsustainable short-term, so upside is conditional on margin tailwinds persisting. Conversely, VZ’s rebound may be underpriced; if it converts incremental 5G monetization into +$0.10–0.30 EPS over 12 months, total return could beat sector peers. Historic parallel: 2014–16 telecom rebounds showed quick mean reversion if execution holds; failure modes include labor strikes, regulatory setbacks, or capex surprises.

Key Decisions for Investors

• Establish a 2–3% portfolio long position in VZ within 30 days (target entry if price drops ≤5% from current or execute now) and sell 1–2 month covered calls 5–7% OTM to generate ~3–5% annualized extra yield; set a stop-loss at -12% or trim to half position if guidance misses next quarter.
• Initiate a 1.5–2% opportunistic long in UPS but hedge with a 3-month 5% OTM protective put (cost tolerable up to 0.8% portfolio) or sell cash‑secured puts 10% OTM to collect premium; increase only if next two quarters’ margin improvement reduces payout ratio below 85%.
• Pair trade: long VZ (2%) / short T (AT&T) (1.5%) to play execution gap—expect relative outperformance of VZ by 5–10% over 6–12 months if VZ sustains subscriber/ARPU gains; rebalance after quarterly results.
• Options tactical: if volatility rises, buy 3–6 month put spreads on UPS (buy 5% OTM, sell 10% OTM) sized to cap downside to 1% portfolio cost, and sell 3–6 month covered calls on VZ 7–10% OTM to harvest income; monitor Teamsters negotiations and next Fed decision within 30–60 days as re-assessment triggers.