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Packaging Corp (PKG) Rewards Shareholders With 27% Dividend Hike

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Zacks Equity Research
·3 min read
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Packaging Corporation of America PKG recently announced a 27% hike in quarterly dividend payout. This move in sync with its disciplined and balanced approach to capital allocation. This increase also indicates the company’s overall operational and financial strength.

The company’s board of directors approved a 27% or 21 cents per share hike in the quarterly dividend rate. This takes the quarterly payout to $1.00 per share and translates to an annual dividend of $4.00 per share. Packaging Corporation will pay the revised dividend on Jan 15, 2021, to shareholders on record as of Dec 21, 2021.

The dividend hike comes after a hiatus of two years. Packaging Corporation had last raised the quarterly dividend rate by 25% to the 79 cents. The new annual dividend of $4.00 per share takes the company’s dividend yield from the current 2.33% to 2.95% — higher than its peer WestRock Company’s WRK dividend yield of 1.77%. Also, Packaging Corporation’s current payout of 51.3% outscores WestRock’s payout of 29.2%.

Solid Balance Sheet

Packaging Corporation’s total debt to total capital ratio stood at 0.44 at the end of third-quarter 2020, lower than the industry’s 0.60. Notably, the company’s total debt to total capital ratio has also gone down considerably over the past several quarters. The company’s times interest earned ratio was at 5.9 as of the third-quarter end, higher than the industry’s 5.2.

As of Sep 30, 2020, the company had $949 million of cash and cash equivalents, $146 million of marketable debt securities, and $326 million of unused borrowing capacity under the revolving credit facility, net of letters of credit. Its primary uses of cash are for operations, capital expenditures, acquisitions, debt service, common stock dividends, and repurchases of common stock. Packaging Corporation did not make any share repurchases in the nine months ended Sep 30, 2020. As of Sep 30, 2020, $193.0 million remained available of its $200 million authorization of its shares repurchases.

Pandemic Driving Growth

Packaging products are essential for the distribution of food, beverage and pharmaceutical products. Hence, the Packaging segment, which contributes around 85% of the company’s revenues, will continue to benefit from the elevated demand for meat, fruit and vegetables, processed food, beverages, medicine, and other consumer products due to the coronavirus crisis. Solid e-commerce demand will continue driving corrugated products demand.

Packaging Corporation currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Price Performance

The stock has appreciated 28% over the past three months compared with the industry’s rally of 32.8%.

Other Key Picks

Some other top-ranked stocks in the Industrial Products sector include AGCO Corporation AGCO and Ball Corporation BLL. While AGCO flaunts a Zacks Rank #1, Ball Corporation carries a Zacks Rank #2 (Buy), at present.

AGCO has an estimated earnings growth rate of 15.5% for the ongoing year. Shares of the company have appreciated 18% in the past three months.

Ball Corporation has an expected earnings growth rate of 16.2% for 2020. The stock has rallied 12% over the past three months.

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