Portfolio Update
The FiveTwenty portfolio received $133.80 in dividends in the past week. LMT, and TROW paid their quarterly dividends during the week.
| Past Week Dividend | $133.80 |
| Current Quarter Dividend (Q1 2023) | $0 |
| Estimated Annual Dividend | $7,776.00 |
| LifeTime Dividend | $8,108.44 |
The capital allocation for the week of 01/01/2023 to 01/07/2023 will be used to establish a position in Sonoco Products Company (NYSE: SON).
SON – Company Profile
Sonoco Products Company (SON) manufactures and sells industrial and consumer packaging products in North and South America, Europe, Australia and Asia. The company operates in 2 main segments, Comsumer Packaging and Industrial Packaging, with all other businesses listed as “all other”. . Official Site | Wikipedia
| Dividend Streak | 40 years |
| Yield | 3.17% |
| Payout Ratio | 31.42%* |
| P/E | 9.94* |
* computed using adjusted EPS of $6.11 as of Q3 2022.
Financials
Does SON have the financial means to sustain and raise its dividend going forward?
Over the last decade, SON has managed to increase revenues form $4.8 billion in 2012 to $5.6 billion in 2021. This represents a modest CAGR of 1.67%. GAAP earnings have been even less inspiring, with SON posting a loss of $85 million for 2021 primarily driven by a $423 million in after-tax non-operating pension costs. However, the acquisition of Ball Metalpack, that closed on 01/26/2022, is on track to provide a healthy boost to both the top and bottom line of SON.
In the past 10 years, GAAP EPS show the same weak trends as GAAP earnings. Adjusted EPS (referred to as Base EPS in the company’s earning reports) have shown considerably better trends. SON grew adjusted EPS from $2.21 in 2012 to $3.55 in 2021, a CAGR of 5.41%. Furthermore, 2022 adjusted EPS are expected to come in at between $6.40 and $6.50 which represents ~55% increase from 2021.
The average dividend per share growth rate was 4.90% per year in the past 10 years and 3.60% per year in the past 3 years. (per GuruFocus) The company has managed to increase its dividend at a healthy clip while maintaining a payout ratio on adjusted EPS of 48% to 56%. The acceleration in adjusted EPS has pushed the payout ratio even lower to a mere 31.4%. This could mean a higher growth rate for the dividend in the next couple of years.
FY 2022 earnings
For the first 3 quarters of FY 2022, SON posted strong financial results boosted significantly by the Ball Metalpack acquisition at the beginning of the year. The company posted quarterly revenue increases of 31%, 38%, and 34% and quarterly adjusted (base) EPS growth of 85%, 89% and 60% over the same periods in 2021.
If the trends hold for Q4 2022 it looks like SON was able to add between $1.7 to $1.9 billion in revenue through the $1.35 billion acquisition. The Ball Metalpack acquisitions continues the successful history of growing through acquisitions for SON. And continuing the trend, the company announced the acquisition of Skjern Paper, during Q3 2022.
As part of the Q3 2022 earnings report, SON increased its full year 2022 guidance for Base EPS to $6.40 to $6.50 from the previous range of $6.20 to $6.30.
Valuation
Are we paying too much for SON at the current share price?
In the last 10 years, SON’s P/E ratio saw a low of 12.18 and a high of 35.15, with a median value of 19.08. (per GuruFocus) The current TTM P/E ratio on GAAP EPS of 13.8 is minimally above the 10 year low. The TTM P/E on adjusted EPS of 9.94 much lower.
The current share price of $60.71 is 0.9% above the 50-day moving average and 0.5% above the 200-day moving average. Additionally, the share price is near the 60% of the 52 week trading range.
Yield
How does the current dividend yield for SON compare to historical values?
In the last 10 years, the dividend yield for SON has been in a range of 2.5% to 4.08%, with a median of 2.99% (per GuruFocus). The current TTM yield of 3.18% is comfortably above the historical median.
SON’s current yield is both about our desired minimum yield value as well as it historical median. In addition, the company’s current payout ratio of ~31% should allow it to continue to grow its dividend.
Thesis
Why are we adding SON to the FiveTwenty portfolio?
SON has a long track record of increasing dividend payouts. The acquisition of Ball Metalpack at the beginning of 2022, has given the companies top and bottom line a healthy boost that should allow SON to continue to pay out a growing dividend stream for year to come.
Additional Research
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