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Packaging Corporation of America's (NYSE:PKG) investors are due to receive a payment of $1.25 per share on 14th of July. Based on this payment, the dividend yield on the company's stock will be 3.8%, which is an attractive boost to shareholder returns.
See our latest analysis for Packaging Corporation of America
Packaging Corporation of America's Earnings Easily Cover The Distributions
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Packaging Corporation of America's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.
Looking forward, earnings per share is forecast to fall by 9.4% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 58%, which is comfortable for the company to continue in the future.
Packaging Corporation of America Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was $1.00 in 2013, and the most recent fiscal year payment was $5.00. This works out to be a compound annual growth rate (CAGR) of approximately 17% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.
Packaging Corporation of America 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. Packaging Corporation of America has seen EPS rising for the last five years, at 8.0% per annum. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.
Packaging Corporation of America Looks Like A Great Dividend Stock
Overall, we like to see the dividend staying consistent, and we think Packaging Corporation of America might even raise payments in the future. The earnings easily cover the company's distributions, and the company is generating plenty of cash. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 2 warning signs for Packaging Corporation of America you should be aware of, and 1 of them can't be ignored. Is Packaging Corporation of America not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.