Graphic Packaging Holding (NYSE:GPK) Will Pay A Dividend Of US$0.075

By
Simply Wall St
Published
November 22, 2021
NYSE:GPK
Source: Shutterstock

Graphic Packaging Holding Company (NYSE:GPK) has announced that it will pay a dividend of US$0.075 per share on the 5th of January. The dividend yield is 1.4% based on this payment, which is a little bit low compared to the other companies in the industry.

Check out our latest analysis for Graphic Packaging Holding

Graphic Packaging Holding's Earnings Easily Cover the Distributions

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Before making this announcement, Graphic Packaging Holding was paying a whopping 107% as a dividend, but this only made up 38% of its overall earnings. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Looking forward, earnings per share is forecast to rise by 106.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 22%, which is in the range that makes us comfortable with the sustainability of the dividend.

historic-dividend
NYSE:GPK Historic Dividend November 23rd 2021

Graphic Packaging Holding Doesn't Have A Long Payment History

It is great to see that Graphic Packaging Holding has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The first annual payment during the last 7 years was US$0.20 in 2014, and the most recent fiscal year payment was US$0.30. This implies that the company grew its distributions at a yearly rate of about 6.0% over that duration. Investors will likely want to see a longer track record of growth before making decision to add this to their income portfolio.

The Dividend's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. Let's not jump to conclusions as things might not be as good as they appear on the surface. However, Graphic Packaging Holding's EPS was effectively flat over the past five years, which could stop the company from paying more every year.

We'd also point out that Graphic Packaging Holding has issued stock equal to 13% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

Graphic Packaging Holding's Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 4 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 performing dividend stock.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.