Every investor’s goal is getting big returns. But for income investors planning for retirement, the goal is consistent cash flow. Bemis’ dividend history is long and it might make a great addition to an income portfolio. Let’s take a look at the business, dividend history, and payout safety going forward.
Business Overview and Highlights
Bemis (NYSE: BMS) is a $5.1 billion business based out of Wisconsin and it employs 15,700 people. Last year Bemis pulled in $4.1 billion in sales and that breaks down to $261,000 per employee.
According to Bemis’ website the company “delivers flexible and rigid plastic packaging for food, consumer products, medical and pharmaceutical companies seeking better ways to serve their customers.” Over two-thirds of Bemis’ packaging is for food products.
The company runs within the industrial sector and maintains a solid credit rating (BBB-) from the S&P. This allows Bemis to issue cheap debt to expand operations and finance other initiatives
Bemis has paid dividends every year since 1922, and in 2019 the company increased its annual dividend for the 36th consecutive year. Bemis would be a Dividend Aristocrat had it not left the S&P 500 in 2014. Bemis now trades within the S&P Midcap 400.
10-Year Dividend History
The company paid investors $0.90 per share a decade ago. Over the last 10 years, the dividend has climbed to $1.24. That’s a 38% increase and you can see the annual changes below…
The compound annual growth is 3.3% over 10 year, and over the last year, the dividend climbed 3.3%. The increase in dividend growth is a good sign. Bemis might work out as a great income investment. Let’s take a look at the yield…
Current Yield vs. 10-Year Average
Bemis’ long history of paying dividends makes it one of the best dividend stocks around. This also makes the dividend yield a great indicator of value. A higher yield is generally better for buyers. Sustainability is also vital, and we’ll look at that soon.
The dividend yield comes in at 2.3% and that’s below the 10-year average of 3.22%. The chart below shows the dividend yield over the last 10 years…
The lower yield shows that investors have bid up the company’s market value. They might be expecting higher growth and payouts. But more often than not, the dividend yield is mean reverting with share price changes.
Improved Dividend Safety Check
Many investors look at the payout ratio to determine dividend safety. They look at the dividend per share divided by the net income per share. Therefore, a payout ratio of 60% would mean that for every $1 Bemis earns, it pays investors $0.60.
The payout ratio is a good indicator of dividend safety, but accountants can manipulate net income. They adjust for goodwill and other non-cash items. Free cash flow is a better metric.
Here is Bemis’ payout ratio based on free cash flow over the last 10 years…
The ratio is volatile over the last 10 years and the trend is up. In 2014 Bemis had very little free cash flow which caused the payout ratio to spike. The last reported year shows a payout ratio of 35.5%. This gives wiggle room for Bemis’ board of directors to raise the dividend.
If you’re interested in seeing more dividend research, please comment below. You can also check out our free dividend DRIP calculator.