Many top income investors stick to dividend portfolios. Building a steady stream of income is a powerful wealth building strategy. And finding the best deals is vital. So today, we’re going to review another one of the best dividend stocks around. Let’s take a look at Silgan Holdings’ dividend history and safety…
Business Overview and Highlights
Silgan Holdings (NSDQ: SLGN) is a $3.3 billion packing company based out of Connecticut. The company is one of the leading suppliers of rigid packaging for consumer goods products. It employs 13,100 people. Last year Silgan Holdings pulled in $4.4 billion in sales and that breaks down to $340,000 per employee.
The company operates within the industrial sector and maintains a solid credit rating (BB+) from the S&P. This allows Silgan Holdings to issue cheap debt to expand operations and finance other initiatives.
On May 7, 2019 Silgan Holdings declared a $0.11 per share quarterly cash dividend. The dividend is payable on June 17 to shareholders of record on June 3.
Silgan Holdings’ Dividends
In 2017 Silgan Holdings’ board of directors declared a two-for-one stock split of its common stock. The 2018 annualized dividend was actually $0.40. If the trend of dividend raises continues Silgan Holdings’ 2019 annualized dividend should be $0.44. This type of dividend growth is a great way to build a portfolio. Here’s a free Dividend Calculator to estimate potential returns in your portfolio.
Silgan Holdings has a long history of dividend growth. The packaging company might be a good income investment. Let’s take a look at the yield…
Current Yield vs. 10-Year Average
Silgan Holdings’ 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 1.47% and that’s above the 10-year average of 1.34%. The chart below shows the dividend yield over the last 10 years…
The higher yield shows that investors have bid down 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. So, a payout ratio of 60% would mean that every $1 Silgan Holdings 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. A better metric is free cash flow.
Here’s Silgan Holdings 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 down. In 2015 Silgan Holdings increased capital spending which decreased free cash flow, and as a result, the payout ratio spiked. Since that year the payout ratio trended downward. The last year shows a payout ratio of 3.5%. This gives plenty of room for Silgan Holdings’ board of directors to raise the dividend.