Packaging Corporation of America (NYSE:PKG) Has Announced A Dividend Of $1.25

The board of Packaging Corporation of America (NYSE:PKG) has announced that it will pay a dividend on the 15th of January, with investors receiving $1.25 per share. Based on this payment, the dividend yield will be 2.1%, which is fairly typical for the industry.

View our latest analysis for Packaging Corporation of America

Packaging Corporation of America's Future Dividend Projections Appear Well Covered By Earnings

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, Packaging Corporation of America was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. By paying out so much of its cash flows, this could indicate that the company has limited opportunities for investment and growth.

The next year is set to see EPS grow by 43.9%. If the dividend continues on this path, the payout ratio could be 45% by next year, which we think can be pretty sustainable going forward.

Packaging Corporation of America Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of $1.60 in 2014 to the most recent total annual payment of $5.00. This implies that the company grew its distributions at a yearly rate of about 12% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

Dividend Growth May Be Hard To Achieve

The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately, Packaging Corporation of America's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. Packaging Corporation of America is struggling to find viable investments, so it is returning more to shareholders. This could mean the dividend doesn't have the growth potential we look for going into the future.

Our Thoughts On Packaging Corporation of America's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Packaging Corporation of America has been making. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Packaging Corporation of America that investors need to be conscious of moving forward. 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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