Income investors seek a steady stream of dividends. Sonoco’s 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
Sonoco (NYSE: SON) is a $6.3 billion business. The company was founded in 1899 and is based out of South Carolina. The company focuses on consumer packaging, industrial products, protective packaging, and packaging supply chain services. The company employs 23,000 people. Last year Sonoco pulled in $5.4 billion in sales and that breaks down to $234,000 per employee.
The company operates within the industrial sector and maintains a solid credit rating (BBB+) from the S&P. This allows Sonoco to issue cheap debt to expand operations and pay dividends.
Sonoco’s board of directors declared a $0.43 per share quarterly common stock dividend on April 17, 2019. It is a 5% increase from the previous quarterly dividend of $0.41 per share. The dividend will be made payable on June 10 to shareholders of record on May 10. Sonoco is a Dividend Achiever with 37 consecutive years of dividend increases.
In his announcement to shareholders, Rob Tiede, president and chief executive officer, said “Today’s dividend increase reflects our confidence in our continued earnings growth and our 94-year commitment to returning cash to our shareholders. Over the past five years, Sonoco has returned more than $950 million to shareholders in the form of dividends and share repurchases.”
Sonoco’s Annual Dividend History
The company paid investors $1.08 per share a decade ago. Over the last 10 years, the dividend has climbed to $1.62. That’s a 50% increase and you can see the annual changes below…
The compound annual growth is 4.1% over 10 years… but over the last year, the dividend climbed 5.2%. The increase in dividend growth is a good sign. Sonoco might work out as a great income investment. Let’s take a look at the yield…
Current Yield vs. 10-Year Average
Sonoco’s 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 2.75% and that’s below the 10-year average of 3.93%. 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. So, a payout ratio of 60% would mean that for every $1 Sonoco 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’s Sonoco payout ratio based on free cash flow over the last 10 years…
The ratio is volatile over the last 10 years. Sonoco had little free cash flow in 2011 which caused the payout ratio to skyrocket. The business has had steadier financials since then. The last reported year shows a payout ratio of 41%. This gives wiggle room for Sonoco’s board of directors to raise the dividend.
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