Why FedEx Shares Are in the Fast Lane Today

What happened

FedEx (NYSE:FDX) has made peace with an activist investor, boosting its dividend by 53% as part of the deal. Investors are pleased, sending FedEx shares up 13% as of midday Tuesday.

So what

FedEx was one of the stocks that benefited from the pandemic, which accelerated the trend toward home delivery. But the stock has been stuck in the doldrums of late, down more than 20% year to date heading into Tuesday trading. The company also has a new CEO, as Raj Subramaniam took over for founder Fred Smith on June 1.

One of Subramaniam's first acts as CEO was to work out a deal with hedge fund D.E. Shaw, which owns about 1 million shares of FedEx. On Tuesday, the company announced a series of changes in coordination with Shaw. including three new directors and a plan to tie executive pay to total shareholder return.

But the headline-grabbing item for investors is a dramatic dividend boost. FedEx declared a quarterly dividend of $1.15 per share, a 53% increase from the previous $0.75.

Subramaniam said in a statement announcing the changes: "Through decades of investments, innovation, and expertise, we have built a global portfolio that serves as the foundation of our competitive advantage. We appreciate the collaboration with the D.E. Shaw group, a longtime FedEx stockholder, with whom we have maintained an ongoing and constructive dialogue in reaching this agreement."

Now what

FedEx has been a massive success since its founding in 1973, and Smith deserves a lot of credit. But the longtime CEO, who still owns about 7.5% of the shares, has been the target of criticism in recent years that he was unresponsive to shareholder concerns. Investors are almost certainly celebrating the higher dividend today, but the oversize stock reaction is also likely due to Subramaniam's willingness to compromise.

There should be a lot of demand ahead for transportation businesses, as e-commerce continues to take share from traditional retail, and demand for delivery services increases. But companies like FedEx also face new competition from the likes of Amazon for that business.

FedEx and Subramaniam are going to need to be nimble and responsive to navigate through the challenges. Tuesday's compromise with Shaw is an indication the new CEO is up to the challenge.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and FedEx. The Motley Fool has a disclosure policy.