Sonoco Products (NYSE:SON), one of the leading global packaging companies and a competitor of Amcor plc (AMCR), has one of the highest yields among dividend aristocrats, the companies that have been consistently increasing their dividend per share for more than 25 years.
After analyzing its Q2 report and historical cash flow data, I would like to conclude that the company has a meaningful potential to continue increasing its DPS in the long term. So, assuming a conservative 4.5% DPS CAGR, investors who purchased the stock for ~$53.7 can enjoy a ~3.2% yield now and ~4% yield by 2026. The company has not increased the DPS this year yet (for instance, in 2015-2019, it declared a higher DPS in the first quarters). However, an increase might materialize in Q4. I would like to address this matter in greater depth below in the article.
Importantly, SON has an almost recession-immune portfolio with exposure to the non-cyclical end-markets (primarily the food industry), which will help it to safely navigate the global economic storm of 2020, as analysts are expecting only ~4% revenue decline this year. Among other things, Bank of America has recently named Sonoco as one of the beneficiaries of the coronavirus vaccine production and seasonal flu vaccine shipments. I concur with the analysts, as demand for thermoformed blisters and heat sealing equipment amid possible mass vaccination can be a strong stimulus for 2020-2021 sales growth.
The top line
In the last ten years, the S&P 400 Index constituent Sonoco Products Company delivered a 3% revenue CAGR; the result was achieved partly by means of inorganic growth. E.g., in 2019, it acquired Thermoform Engineered Quality and Plastique Holdings; three acquisitions were closed in 2018, including Conitex Sonoco, Compositub, and Highland Packaging Solutions. During the ten-year period, the operating income CAGR was a bit higher than the sales CAGR, equaled ~4.3%, which indicates that the
