Are You Looking for a High-Growth Dividend Stock? Packaging Corp. (PKG) Could Be a Great Choice

Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Packaging Corp. In Focus

Based in Lake Forest, Packaging Corp. (PKG) is in the Industrial Products sector, and so far this year, shares have seen a price change of 2.26%. Currently paying a dividend of $1 per share, the company has a dividend yield of 2.84%. In comparison, the Containers - Paper and Packaging industry's yield is 2.02%, while the S&P 500's yield is 1.41%.

Looking at dividend growth, the company's current annualized dividend of $4 is up 18.7% from last year. Over the last 5 years, Packaging Corp. has increased its dividend 3 times on a year-over-year basis for an average annual increase of 10.31%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Packaging Corp.'s current payout ratio is 58%, meaning it paid out 58% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, PKG expects solid earnings growth. The Zacks Consensus Estimate for 2021 is $8.50 per share, with earnings expected to increase 47.06% from the year ago period.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide a quarterly payout.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, PKG is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).

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