There is a lot to be liked about Sonoco Products Company (NYSE:SON) as an income stock. It has paid dividends over the past 10 years. The stock currently pays out a dividend yield of 2.6%, and has a market cap of US$6.2b. Should it have a place in your portfolio? Let’s take a look at Sonoco Products in more detail.
5 checks you should do on a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Is it the top 25% annual dividend yield payer?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has dividend per share amount increased over the past?
- Does earnings amply cover its dividend payments?
- Will it be able to continue to payout at the current rate in the future?
Does Sonoco Products pass our checks?
The current trailing twelve-month payout ratio for the stock is 52%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect SON’s payout to remain around the same level at 50% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 2.8%. In addition to this, EPS should increase to $3.46.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. In the case of SON it has increased its DPS from $1.08 to $1.64 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. This is an impressive feat, which makes SON a true dividend rockstar.
Relative to peers, Sonoco Products produces a yield of 2.6%, which is high for Packaging stocks but still below the market’s top dividend payers.
Keeping in mind the dividend characteristics above, Sonoco Products is definitely worth considering for investors looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. Below, I’ve compiled three important factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for SON’s future growth? Take a look at our free research report of analyst consensus for SON’s outlook.
- Valuation: What is SON worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether SON is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.