Is Avery Dennison Corporation (NYSE:AVY) An Attractive Dividend Stock?
Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, Avery Dennison Corporation (NYSE:AVY) has paid a dividend to shareholders. It currently yields 2.2%. Does Avery Dennison tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
Check out our latest analysis for Avery Dennison
Here’s how I find good dividend stocks
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
Is its annual yield among the top 25% of dividend-paying companies?
Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
Has it increased its dividend per share amount over the past?
Is its earnings sufficient to payout dividend at the current rate?
Will the company be able to keep paying dividend based on the future earnings growth?
How does Avery Dennison fare?
Avery Dennison has a trailing twelve-month payout ratio of 55%, meaning the dividend is sufficiently covered by earnings. However, going forward, analysts expect AVY’s payout to fall to 30% of its earnings, which leads to a dividend yield of 2.2%. However, EPS should increase to $6.15, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. Although AVY’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Investors have seen reductions in the dividend per share in the past, although, it has picked up again.
Compared to its peers, Avery Dennison has a yield of 2.2%, which is on the low-side for Packaging stocks.
Next Steps:
With this in mind, I definitely rank Avery Dennison as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three relevant factors you should further examine:
Future Outlook: What are well-informed industry analysts predicting for AVY’s future growth? Take a look at our free research report of analyst consensus for AVY’s outlook.
Valuation: What is AVY worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether AVY is currently mispriced by the market.
Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
