Graphic Packaging Holding's (NYSE:GPK) Dividend Will Be Increased To $0.10

The board of Graphic Packaging Holding Company (NYSE:GPK) has announced that it will be paying its dividend of $0.10 on the 5th of April, an increased payment from last year's comparable dividend. Despite this raise, the dividend yield of 1.7% is only a modest boost to shareholder returns.

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. However, prior to this announcement, Graphic Packaging Holding's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share is forecast to rise by 66.2% over the next year. If the dividend continues on this path, the payout ratio could be 13% by next year, which we think can be pretty sustainable going forward.

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 annual payment during the last 8 years was $0.20 in 2015, and the most recent fiscal year payment was $0.40. This means that it has been growing its distributions at 9.1% per annum over that time. The dividend has been growing as a reasonable rate, which we like. However, investors will probably want to see a longer track record before they consider Graphic Packaging Holding to be a consistent dividend paying stock.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. Graphic Packaging Holding has impressed us by growing EPS at 12% per year over the past five years. Graphic Packaging Holding definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Graphic Packaging Holding Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for Graphic Packaging Holding that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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