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Packaging Corporation Hikes Dividend

Zacks Equity Research

Packaging Corporation of America (PKG), the fourth largest containerboard and corrugated packaging manufacturer in the U.S., recently announced a 28% year over year hike in its annual dividend payout to $1.60 per share on an annualized basis. The first quarter 2013 cash dividend of 40 cents is payable on July 15 to shareholders of record as of Jun 14.

Based on the closing price of $49.81 on May 16, 2013, the proposed dividend affirms a yield of 3.2%. A steady dividend payout is part of the long-term strategy of Packaging Corporation to provide attractive risk-adjusted returns to its stockholders. In addition, decent dividend increases at periodic intervals have been one of the company’s most attractive features.

The company had earlier raised the quarterly dividend payout from 25 cents to 31.3 cents per share or from $1.00 to $1.25 on an annualized basis in March 2013. Prior to that, Packaging Corporation raised its quarterly dividend in March 2012 from 20 cents to 25 cents per share.

The recent dividend hike follows strong quarterly results, with Packaging Corporation reporting record net sales of $755.2 million in first quarter 2013. The superior performance was attributable to increased corrugated products shipments, while total production of containerboard rose 6,000 tons year over year to 646,000 tons.

The increase in dividend payout also signifies the inherent financial strength of the company, driven by a healthy execution of operating plans. In addition, Packaging Corporation has a healthy liquidity position with a cash balance of $268 million as of Mar 31, 2013.

Packaging Corporation manufactures a diversified range of corrugated products such as shipping containers, point-of-sale graphics packaging, point-of-purchase displays and other specialized packaging. The company operates 71 corrugated products manufacturing plants and 4 paper mills across the country.

Packaging Corporation currently has a Zacks Rank #3 (Hold). Other players in the industry worth mentioning include Berry Plastics Group, Inc. (BERY), UFP Technologies, Inc. (UFPT) and Graphic Packaging Holding Company (GPK), each carrying a Zacks Rank #2 (Buy).

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