Packing Up Dividend Growth

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

Image courtesy of: Master isolated images at FreeDigitalPhotos.net

28 thoughts on “Packing Up Dividend Growth

  1. Thanks for profiling these companies, DivHut. I really like the space – boring as they come for sure and I love it. I think there are a couple of Canadian companies as well that have good exposure to the international market which are high dividend payers – such as Richards Packaging Income Fund (RPI.UN.TO) and pays 5%+ in dividends (but no div growth). I cant remember the other company in the space based in Canada.
    Roadmap2Retire recently posted…Chatter Around the World – 118My Profile

    • Hi R2R,

      Sometimes boring can deliver great returns too. Thanks for sharing Richards Packaging Income Fund (RPI.UN.TO). Never heard of that name but I don’t doubt there are many excellent Canadian companies in this space as well. After all there are some serious long term dividend payers hailing out of Canada. Thank you for stopping by and commenting.

    • Hi JC,

      Out of all the companies mentioned BMS is the only one in my portfolio. It’s been a bit pricey for a while from a valuation perspective but is now more reasonable. I was surprised to learn about some of those higher yielding plays in the space. Just goes to show, as you stated, sometimes boring can be wonderful. As always, I appreciate your comment.

  2. Keith,
    I recently looked at TUP because of the dividend, but decided not to invest. The business model isn’t something that I would normally put money in, but Simply Wall St. shows an earning decline of 18% over the last 12 months along with significant insider selling. Insider selling over the last 12 months is about 3 times insider buying, but very troubling in the last 3 months: 129K shares sold and 3K shares bought. When prospects are good, you generally see insiders buying the stock.
    Best wishes,
    KeithX

    • Hi KeithX,

      I have to agree with you regarding the business model of TUP. It’s not one I care for either but I guess what’s more troubling is the amount of insiders selling as you pointed out. While people close to corporations sell for various reasons, and I never used that as a metric for any of my buy decisions, I could understand your apprehension putting fresh capital into TUP. Thank you for sharing your insight.

    • Hi FV,

      Well, in the packaging space you have some choices that are well above 4%. Of course, high yield shouldn’t be the only metric you use when choosing a dividend paying stock. Sometimes it’s better to go for dividend growth rather than just current yield but I see the point in trying to achieve a 4%+ yield among your investments. Thank you for commenting.

    • Hi DC,

      Thank you for your kind words regarding the blog post. The packaging space is definitely a boring sector that we are all dependent upon which kind of ensures a longevity in the space, something similar to trash collection. I think when looking at TUP you have to decide if you want to own a dividend grower or a current high yielder. You often can’t have both. Of the companies mentioned, just BMS is in my portfolio. Thank you for stopping by and commenting.

    • Hi Tawcan,

      Glad to have brought this sector and the above companies to your attention. The packaging space is a sector that we are all dependent upon and has its roots in every industry across the globe. And, as I mentioned, one company, BMS, is a dividend aristocrat which should tell you something about the reliability and predictability of the space. As always, I appreciate your comment.

  3. I love boring sectors like packaging. I’m a Boring Retail Banker. I never even considered that as a sector. I was never really fully cognizant that it existent (not that I didn’t know packaging companies existed, but they jugs never entered my mind. I guess the best sectors are hidden in plain sight). And I didn’t know Tupperware was a publicly traded stock, or a dividend growth stock for that matter.

    Adding BMS, PKG, and TUP to my queue.

    Sincerely,
    ARB–Angry Retail Banker
    ARB recently posted…When The Banks Won’t Help You: Where To Find No Credit Check LoansMy Profile

    • Hi ARB,

      Most people do not think of packaging nor the companies that supply the actual packages. Yet, it’s hard to ignore an industry that’s approximately $424 billion in annual sales. As my overview pointed out, you have a little of everything if considering investing in the space. Some low yield higher growth potential dividends, some very high yield/low growth dividends and even a long time dividend raiser with BMS being an aristocrat. Glad to bring some of these names to your attention. Thank you for commenting.

  4. DivHut,

    Been on the road a lot of late, so I caught your article on Seeking Alpha. I really like your themed articles, and in particular here I really like BLL. Although they all have nice growth potential, I do wish more of those yields were higher. BLL’s history in particular is very compelling, especially since I’ve gotten married recently and attended a few weddings; every wedding now seems to have 1000 Ball Mason jars, no less…

    Thanks for the post,
    Gremlin
    Long TUP
    Dividend Gremlin recently posted…Fall Mix PackMy Profile

    • Hi DG,

      Glad you enjoy these sector theme articles. It’s always fun to pick a sector that might otherwise get overlooked and see what’s being offered in terms of dividend paying stocks. While a few of the names mentioned don’t really pay that much, you do have some current high yielding stocks to choose from.

      Congrats on your recent nuptials as well. I know what you mean by seeing BLL mason jars everywhere at weddings. Something about them give any event a homestyle, rustic appeal. Wish you and Mrs. Gremlin a happy life together!

  5. Hi Divhut,

    Thank you for sharing these overviews of packaging companies. I will keep BMS on my industrial screen. I like the way you put it, how exciting can carboard boxes be? I’d sure like to own a piece of whichever company makes boxes for Amazon! I’m not sure which company that would be, but I just saw that Amazon is rolling out ads on its boxes.
    Dividendniche recently posted…Canadian and Global Foundation WatchlistMy Profile

    • Hi Dividendniche,

      Sometimes boring can be wonderful. The reality of many boring businesses is that they are extremely reliable and predictable in terms of their growth prospects, operations and most importantly for us, their dividends. Packaging, trash removal, insurance, toilet paper and many more “boring” industries can and have delivered solid returns for decades.

      I happen to have an Amazon box next to me and underneath it shows it’s from another dividend paying company, International Paper Company (IP). Thank you for stopping by and commenting.

    • Hi DG,

      When you think about it, many boring companies are in the consumer staples sector, which as we all know, is one of the most stable sectors that exists. Out of the names mentioned, I only own BMS which is continuing its modest dividend raises for multiple decades. As always, I appreciate your comment.

  6. My son owns BMS, and it’s been a solid performer for him. PKG looks the most promising from this list of the ones I haven’t investigated too much before. GEF hasn’t raised it’s dividend in 5 years; it sort of seems to be in a bit of a roller coaster mode right now; have they suggested an upcoming dividend raise? TUP…man, that debt to equity ratio is a tad high for my tastes; more investigations would need to be made into those levels.

    There’s a new player in this space: WestRock Company (WRK); looks like it went public in August and has already paid a dividend….

    • Hi DH,

      Well I think there’s good reason your son owns BMS as well as myself when looking at this specific sector. Not that the other names aren’t potential good picks, but as you said, each of the other names have some glaring long term issue though TUP had a crazy day not long ago when it “blew the lid” off earnings 🙂 I haven’t heard of WRK. Thank you for commenting and bringing it to my attention.

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