Last update on 2024-06-27

Packaging Corp of America (PKG) - Dividend Analysis (Final Score: 6/8)

Packaging Corp of America's dividend policy evaluated on an 8-criteria system. Final score: 6/8. Highlights include strong growth and above-industry yields.

Short Analysis - Dividend Score: 6

We're running Packaging Corp of America (PKG) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield represents the annual dividend payment to shareholders, expressed as a percentage of the stock's price. It's crucial for investors because it shows how much cash flow they're getting back for each dollar invested in equity.

Packaging Corp of America (PKG) has a dividend yield of 3.0692% for 2023, exceeding the industry average of 2.77%. Examining the last 20 years, PKG's dividend yield has generally trended upwards with notable spikes during turbulent market conditions such as in 2008 (8.9153%). The spike was due to the significant drop in their stock price during the financial crisis. Similarly, the consistency in yield growth up to the recent year signifies robust cash flow and a strong dividend policy. Dividend per share also indicates regular increases from $0.15 in 2003 to $5 in 2023. The above-industry average indicates that PKG is performing well in returning value to shareholders, making it an attractive option for income-focused investors.

Average annual Growth Rate higher than 5% in the last 20 years?

Dividend Growth Rate is a crucial measure indicating how much a company's dividend payments have increased over a period. Consistent and high growth rates are usually a sign of a company's financial health and its ability to generate strong earnings.

Packaging Corp of America (PKG) has shown an average dividend growth rate of approximately 27.46% over the past 20 years. This is well above the 5% benchmark, indicating a strong performance in terms of returning value to shareholders. Although there are some years with negative growth—such as 2009 and 2005—these are outweighed by significant increases in other years. Such a high average growth rate is a positive trend, reflecting the company's robust profit generation and shareholder-friendly policies.

Average annual Payout Ratio lower than 65% in the last 20 years?

The payout ratio is the percentage of earnings paid to shareholders in dividends. A lower payout ratio indicates more earnings are retained within the company.

From 2003 to 2023, Packaging Corp of America (PKG) displayed an average payout ratio of 52.31%, which is comfortably below the desirable threshold of 65%. This indicates a trend of retaining a substantial portion of earnings within the company, which is a healthy sign for future growth. The volatility witnessed in early years, particularly 2003 and 2005, shows anomalies possibly due to extraordinary circumstances but stabilizes post-2010, further strengthening the company’s financial prudence. Therefore, this trend is positive, signifying a balanced approach towards rewarding shareholders while retaining earnings for future growth.

Dividends Well Covered by Earnings?

Earnings per Share (EPS)

The Earnings Per Share (EPS) for Packaging Corp of America (PKG) over the past two decades shows a trajectory of significant improvement, with a pivotal swing from negative earnings in 2003 to progressive growth thereafter. The EPS reached its pinnacle in 2022 with a value of $11.08. Despite some fluctuations, particularly during global financial stress periods like 2008 and 2020, PKG's recovery and subsequent growth are noteworthy. For the overall analysis, a higher EPS is deemed favorable as it not only points to a company's profitability but also augments the company’s ability to disburse dividends.

Dividends Well Covered by Cash Flow?

Dividend coverage by free cash flow is important as it reflects the company’s ability to sustain its dividend payouts from its cash flow, ensuring the reliability of dividends.

Analyzing the cash flow and dividend payout data of Packaging Corp of America (PKG) from 2003 to 2023 reveals several important insights. The trend of the Dividend covered by Cashflow ratio shows fluctuations but an overall increasing trend over the 20 years. The ratio started at 0, significantly improved in 2005 to about 0.82, dropped and showed volatility until 2010, spiked in 2011, and then stabilized and started to improve from 2012 onwards. By 2023, the ratio stands at approximately 0.53. Generally, levels above 1 are ideal, indicating the company earns more than it pays out in dividends. PKG’s below-par ratio indicates that its dividends are not always fully covered by free cash flow, which could be a concern for dividend sustainability. However, the improving trend in recent years is a positive sign, suggesting the company is moving towards better dividend coverage. This trend, although currently not ideal, shows potential for more robust coverage in the future.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends over the past two decades indicate the company’s ability to generate consistent cash flow, making it attractive to income-seeking investors.

Packaging Corp of America (PKG) has demonstrated commendable stability in its dividend payments over the past 20 years. Analyzing the data, the dividend per share increased from $0.15 in 2003 to $5 in 2023. There was a significant recovery after the only drop in 2008 (down to $0.6) which rebounded back to $1 in 2010—showing resilience and consistent upward trajectory thereafter. This trend is favorable for income-seeking investors, as it underscores the company's strong financial health and commitment to returning value to shareholders without any 20%+ drop over the evaluated period.

Dividends Paid for Over 25 Years?

Considering whether the company has paid dividends for over 25 years helps to evaluate its long-term financial stability and commitment to returning value to shareholders.

Packaging Corp of America (PKG) has consistently paid dividends only since 2003. Before 2003, there were no dividends paid to shareholders. This indicates that PKG has a record of paying dividends for just over 20 years, not reaching the 25-year benchmark yet. While not meeting the criterion, the trend since 2003 shows a committed approach to offering regular dividends, with substantial increases over the years, such as from $0.15 per share in 2003 to $5 per share in 2023. The failure to meet the 25-year threshold is not ideal but does show positive long-term financial commitment and growth.

Reliable Stock Repurchases Over the Past 20 Years?

Interpret whether Packaging Corp of America (PKG) has had reliable stock repurchases over the past 20 years.

Looking at the data from 2003 to 2023, PKG appears to have executed stock repurchases consistently. Significant reductions in the number of shares occurred in specific years such as 2006, 2008, 2009, 2011, 2012, 2015, 2016, 2021, 2022, and 2023. This clearly indicates a trend towards buying back shares, thereby reducing the number of outstanding shares over the long term. The average reduction rate in the number of shares is -0.7553, indicating a steady share buyback program. This is generally a good trend as it usually signals financial strength and confidence from the management in the company's future performance. Consistent buybacks can lead to an increase in earnings per share (EPS) and often result in a favorable perception from investors.