Why Packaging Corp. (PKG) is a Top Dividend Stock for Your Portfolio
All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Packaging Corp. In Focus
Based in Lake Forest, Packaging Corp. (PKG) is in the Industrial Products sector, and so far this year, shares have seen a price change of 11.17%. The maker of containerboard and corrugated packaging products is paying out a dividend of $1 per share at the moment, with a dividend yield of 2.61% compared to the Containers - Paper and Packaging industry's yield of 2.06% and the S&P 500's yield of 1.37%.
In terms of dividend growth, the company's current annualized dividend of $4 is up 18.7% from last year. Over the last 5 years, Packaging Corp. has increased its dividend 3 times on a year-over-year basis for an average annual increase of 10.31%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Packaging Corp.'s payout ratio is 58%, which means it paid out 58% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for PKG for this fiscal year. The Zacks Consensus Estimate for 2021 is $8.51 per share, representing a year-over-year earnings growth rate of 47.23%.
Bottom Line
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. However, not all companies offer a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, PKG is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).
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