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The board of Graphic Packaging Holding Company (NYSE:GPK) has announced that it will pay a dividend of US$0.075 per share on the 5th of July. This payment means the dividend yield will be 1.3%, which is below the average for the industry.
Graphic Packaging Holding's Earnings Easily Cover the Distributions
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Graphic Packaging Holding is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.
The next year is set to see EPS grow by 132.2%. If the dividend continues along recent trends, we estimate the payout ratio will be 17%, which is in the range that makes us comfortable with the sustainability of the dividend.
Graphic Packaging Holding Doesn't Have A Long Payment History
Graphic Packaging Holding's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. The first annual payment during the last 7 years was US$0.20 in 2015, and the most recent fiscal year payment was US$0.30. This implies that the company grew its distributions at a yearly rate of about 6.0% over that duration. Graphic Packaging Holding has a nice track record of dividend growth but we would wait until we see a longer track record before getting too confident.
Graphic Packaging Holding Could Grow Its Dividend
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Graphic Packaging Holding has seen EPS rising for the last five years, at 5.0% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While Graphic Packaging Holding is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. To that end, Graphic Packaging Holding has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about. Is Graphic Packaging Holding not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.