Even though the ongoing supply-chain disruptions and rising costs are a spoilsport, the Zacks Containers – Paper and Packaging industry seems well-poised to benefit from solid demand resulting from consumer-oriented end-markets, as packaging is integral to the distribution of products. Booming e-commerce activities and improving demand for sustainable and eco-friendly packaging options in the wake of increasing environmental concerns are expected to support the industry’s growth.
In this write-up, we highlight three dividend stocks, namely Packaging Corporation of America PKG, Sonoco Products Company SON and Greif, Inc. GEF that look poised to deliver better results, backed by strong demand, pricing and cost-saving actions.
The industry is persistently encountering supply-chain disruptions and higher raw material costs. These are stemming from various factors, including general inflationary pressure, limited availability of certain raw materials and global transportation disturbances. Shortage of labor is also an issue.
Nevertheless, demand remains solid to drive the industry. The packaging industry has a significant exposure (more than 60%) to consumer-oriented end markets, such as food and beverages, and healthcare, which keep demand for packaging applications fairly stable across economic cycles. Also, e-commerce activities have surged over the past few years and the pandemic further accelerated the same.
The importance of packaging thus increased manifold as it helps maintain the integrity and durability of a product to withstand the complex product-delivery process. Per Statista, the global retail e-commerce sales, which were around $4.9 trillion in 2021, are expected to reach $7.4 trillion by 2025.
Demand for environmentally-friendly, biodegradable packaging materials is steadily rising globally, courtesy of customers’ increasing awareness of environmental issues. To capitalize on this trend, the players in the industry are making investments by adopting new technology and bringing innovative products.
How to Pick the Right Dividend Stocks
We ran the Zacks Stocks Screener and shortlisted the packaging stocks with a dividend yield of more than 2% and consistent divided growth of above the past five years. They also have a sustainable dividend payout ratio of less than 60% and carry a Zacks Rank #2 (Buy) or 3 (Hold), currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Greif: GEF pays out a quarterly dividend of 50 cents ($2.00 annualized) per share, which gives it a 2.69% yield at the current stock price. Greif has a payout ratio of 23%, with a five-year dividend growth rate of 1.75%. This Delaware, OH-based player that produces and sells industrial packaging products and services currently carries a Zacks Rank of 2. (Check Greif’s dividend history here).
Greif, Inc. Dividend Yield (TTM)
Greif, Inc. dividend-yield-ttm | Greif, Inc. Quote
GEF’s Global Industrial Packaging segment has been gaining from strong key end markets for a while. The Paper Packaging segment is constantly benefiting from higher selling prices following an increase in published containerboard and boxboard prices. Strong demand and pricing increases are likely to boost Greif’s fiscal 2022 results. GEF continues to invest in the business and return excess cash to its shareholders through an attractive and growing dividend, while deleveraging its balance sheet.
Sonoco: This Hartsville, SC-based player currently carries a Zacks Rank #2. SON pays out an annual dividend of $1.96 per share and has a payout ratio of 36%. It has a 3.03% yield at the current stock price with a five-year dividend growth rate of 3.78%. (Check Sonoco’s dividend history here).
Sonoco Products Company Dividend Yield (TTM)
Sonoco Products Company dividend-yield-ttm | Sonoco Products Company Quote
Sonoco’s consumer-packaging businesses are primarily benefiting from the Metal Packaging acquisition. The segment’s flexible packaging business is gaining from strong demand for confectionery, food service and other food products. Plastic food packaging reflects higher demand in the fresh and prepared food markets. Demand for Industrial Paper Packaging products returned to pre-pandemic levels in most global markets. SON’s focus on optimizing businesses through productivity improvement, standardization and cost control will drive results in the near term. It is focused on increasing investment in its core consumer and industrial businesses, and achieving an annual EBITDA of $1 billion by 2026.
Packaging Corporation of America: This Lake Forest, IL-based entity carries a Zacks Rank #3, currently. PKG pays out an annualized dividend of $5.00 per share, reflecting a payout ratio of 44%. It has a five-year dividend growth rate of 11.85% and a yield of 3.65% at the current share price. (Check Packaging Corp’s dividend history here).
Packaging Corporation of America Dividend Yield (TTM)
Packaging Corporation of America dividend-yield-ttm | Packaging Corporation of America Quote
PKG’s packaging business, accounting for around 91% of its revenues, has been benefiting for sometime now from strong demand in e-commerce and rising requirements for the packaging of meat, fruit and vegetables, processed food, beverages and medicines. Demand for both containerboard and corrugated products remains strong across most of PKG’s end markets. Packaging Corporation maintains a balanced approach to capital allocation to boost growth and maximize its shareholder returns. The conversion of the No. 3 paper machine at its Jackson, AL mill to linerboard in a phased manner over the next three years will help it meet strong packaging demand.
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