Graphic Packaging Holding Company's (NYSE:GPK) investors are due to receive a payment of $0.10 per share on 5th of January. Including this payment, the dividend yield on the stock will be 1.8%, which is a modest boost for shareholders' returns.

Check out our latest analysis for Graphic Packaging Holding

Graphic Packaging Holding's Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. However, prior to this announcement, Graphic Packaging Holding's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 27.6%. Assuming the dividend continues along recent trends, we think the payout ratio could be 15% by next year, which is in a pretty sustainable range.

Graphic Packaging Holding Is Still Building Its Track Record

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. Since 2014, the dividend has gone from $0.20 total annually to $0.40. This works out to be a compound annual growth rate (CAGR) of approximately 8.0% a year over that time. Graphic Packaging Holding has been growing its dividend at a decent rate, and the payments have been stable. However, the payment history is very short, so there is no evidence yet that the dividend can be sustained over a full economic cycle.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that Graphic Packaging Holding has grown earnings per share at 15% per year over the past five years. Graphic Packaging Holding definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Graphic Packaging Holding Looks Like A Great Dividend Stock

Overall, we think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 2 warning signs for Graphic Packaging Holding that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield 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.