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All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Packaging Corp. In Focus
Packaging Corp. (PKG) is headquartered in Lake Forest, and is in the Industrial Products sector. The stock has seen a price change of 0.99% since the start of the year. The maker of containerboard and corrugated packaging products is currently shelling out a dividend of $1.25 per share, with a dividend yield of 3.64%. This compares to the Containers - Paper and Packaging industry's yield of 2.33% and the S&P 500's yield of 1.76%.
Taking a look at the company's dividend growth, its current annualized dividend of $5 is up 25% from last year. Packaging Corp. has increased its dividend 2 times on a year-over-year basis over the last 5 years for an average annual increase of 10.86%. 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 39%, meaning it paid out 39% of its trailing 12-month EPS as dividend.
PKG is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2022 is $11.66 per share, representing a year-over-year earnings growth rate of 24.17%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. 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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Packaging Corporation of America (PKG) : Free Stock Analysis Report
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