Dividend Investing In The Packaging And Container Industry
As a dividend growth investor I am always on the lookout for reliable dividend paying stocks within industries that are very predictable, consistent and not subject to sudden shifts in their business models. Another way of saying this is, “boring is sexy.” My long term dividend growth portfolio reflects this aspect as consumer staples remain my largest sector overall with industrial and health stocks following. I just love the predictable nature of these sectors as their products and services are literally used everyday by the entire planet. You already know many of these quality names such as The Procter & Gamble Company (PG), Colgate-Palmolive Co. (CL), Unilever plc (UL), Johnson & Johnson (JNJ) and many, many more. Not too much that’s exciting or new about diapers, toothpaste, toilet paper, mayonnaise or Band-Aid’s and that’s exactly how I like to invest long term.
When considering “boring” businesses none seem to come close to the packaging industry. After all, how exciting can cardboard boxes or plastic wrap be? Well, the industry itself might not be that exciting but the sheer size is definitely enough to whet ones appetite for considering an investment. It is estimated that the global packaging industry is valued at approximately $424 billion annually with North America’s portion valued at $118 billion. Needless to say, the packaging industry is enormous. It’s interesting to see the material breakdown as well for this sector as everything, when you think about it, comes in a package whether it’s paper (36%), metal (17%), plastic (34%) or glass (10%). Food and beverages are the largest users of packaging while pharmaceutical and cosmetic products round out smaller portions of the sector.
When looking at the packaging sector, there are actually quite a few names that one might consider for a dividend growth portfolio. In fact, one name is a coveted dividend aristocrat. Let’s take a general look at some of those names starting with one of the larger names in the space, Sealed Air Corporation (SEE). Headquartered in Charlotte, NC, SEE provides food safety and product protection solutions worldwide. If you ever sent a package or mailed something that required additional protection you more than likely used a Sealed Air product. Brand names like Bubble Wrap, Instapak and Jiffy are common among padded envelopes and used widely. SEE currently yields 1.07% with a low payout ratio of 22.9% based on an EPS of 2.27. By most measures, though low yielding, this dividend appears to be safe with room for future growth. With a current PE of 41.2 and forward PE of 19.5 valuations appear to be a little rich at current prices. While not having the longest dividend track record among the names to be discussed, SEE has grown quite a bit especially within the last five years.
Another major player in the packaging space is Ball Corporation (BLL). Headquartered in Broomfield, CO, BLL supplies metal packaging products to the beverage, food, personal care, and household products industries worldwide. If you ever took a swig of beer or soda or ate canned fruit or vegetables, odds are you opened a BLL product. This is exactly the type of ubiquitous, “boring” products or service companies that I love to invest in. Currently yielding a minuscule 0.78% with an equally low payout ratio of 15.8% based on an EPS of 3.29, BLL does offer a very safe dividend with current cash flow. I know many who are investing for income might not get excited about a current yield under 1% but BLL does have plenty of room for dividend growth. If the last five years are any indication of future potential growth one might want to consider BLL as its five year annualized dividend growth rate is an impressive 21.06%. The current PE of BLL is at 23.4 which is slightly above its five year average PE of 15.9. Forward PE looks a lot more enticing at 16.1 and just looking at a PE metric makes it cheaper than SEE.
Looking at some the smaller companies in the packaging space based on market cap we have Packaging Corporation of America (PKG). A very appropriate name for a company that describes exactly what it does. Coming out of Lake Forest, IL, PKG, as the name suggests, manufactures and sells container board and corrugated packaging products in the United States, Europe, Mexico, and Canada. In other words, if you ever received a package in a cardboard box or stacked them at work you very well could have been using a PKG product. Currently yielding 3.17% (did I get your attention now?) with a moderate payout ratio of 47.3% based on an EPS of 4.65, PKG is becoming a dividend machine sporting a ten year annualized dividend growth rate of 10.31%. From a valuation perspective, PKG has a current PE of 16.7 which is slightly lower than its five year average of 17.0. Forward PE is even lower at just 13.7.
Finally, we get to a long time holding of mine in the packaging space, Bemis Company, Inc. (BMS). Founded in 1858 and based in Neenah, WI, this stock has been in my dividend growth portfolio since 2007 and though a relatively small position for me, has performed decently offering me some capital appreciation and, more importantly, increased dividends each year I have held the stock. BMS invents, designs, and manufactures packaging products for the food, personal care, medical, pharmaceutical, electronics, industrial and other consumer goods sector. Currently yielding a decent 2.69% with a moderate payout ratio of 43.9% based on an EPS of 2.55 the dividend of BMS appears to be safe with room for future growth. In fact, BMS is a coveted dividend aristocrat having raised its dividend every year for 31 years. With that longevity BMS has offered a twenty five year annualized dividend growth rate of 8.22%. Not bad for that long of a term. From a valuation perspective BMS has a current PE of 17.2 which is lower than its five year average of 19.5. Forward PE is even lower at 15.1. Of course having a four star rating from Morningstar doesn’t hurt either. Is BMS on sale based on current prices?
Next, is a packaging company that needs no introduction as most everyone knows it by its brand name, Tupperware Brands Corporation (TUP). Headquartered in Orlando, FL, TUP is a dividend monster sporting a 4.89% yield with a moderately high payout ratio of 61.8% based on an EPS of 4.40. Despite this high yield the dividend appears to be safe with room for future growth too. TUP’s past dividend growth rate has been impressive as well with a ten year annualized dividend growth rate of 11.95%. Not too bad for a company selling plastic containers to hold your leftovers. From a valuation perspective TUP has a current PE of 13.7 well below its five year average of 16.9. Forward PE looks more enticing at 11.4.
Last, but not least, is the smallest of the packaging companies I’ll be doing an overview, with a market cap of just $1.87B but with a large yield is Greif, Inc. (GEF). Headquartered in Delaware, OH, GEF produces and sells industrial packaging products worldwide which include steel drums, plastic drums, water bottles, corrugated containers and much more. Currently yielding 4.78% with a relatively high payout ratio of 87.5% based on an EPS 1.92. the dividend still appears to be safe but future raises might be doubtful in the near term. Though future dividend raises might be in question, past performance of GEF’s dividend growth has also been impressive sporting a ten year annualized dividend growth rate of 18.41%. From a valuation perspective GEF has a current PE of 24.6 which is well above its five year average PE of 15.6. Forward PE looks more reasonable at 14.5.
Clearly, when looking to invest in the packaging industry one is afforded many options. There are lower yielding, low payout ratio companies that can offer superior dividend growth going forward along with companies that offer relatively high yields that can juice current income for any dividend growth portfolio. One company, as mentioned is a coveted dividend aristocrat raising dividends for over three decades.
What do you think about investing in a boring sector like packaging? Are any of the names mentioned above in your portfolio? Please let me know below.
Dicslosure: Long PG, CL, UL, JNJ, BMS