Dividend Growth Stock Overview: Sonoco Products Company

Sonoco Products Company is one of the largest recyclers of cardboard in the world.
Photo courtesy Travis Wise/flickr.com.

About Sonoco Products Company

Sonoco Products Company manufactures and markets a variety of packaging products around the world. The company, headquartered in South Carolina, has 336 manufacturing and administrative facilities located across 34 countries. Sonoco Products began business as the Southern Novelty Company in 1899, producing paper carriers for winding and transporting yarn. In 1923, the company’s name was changed to Sonoco.

Sonoco tracks its operations in four separate business segments:

The Consumer Packaging segment manufactures packaging for multiple food products, such as snacks, nuts, candy, powdered and liquid drinks, and pasta. These products include rigid paperboard containers and peelable membrane closures for composite and metal cans. The Consumer Packaging segment provided 39% of total company sales in 2014.

The Paper and Industrial Converted Products segment provides raw material for the company’s fiber based packaging. With a manufacturing capacity of 1.8 million tons of recycled paper products, the segment produces more than enough material for the rest of the company: Sonoco uses 56% of the paper manufactured by this segment, with the remainder sold to other companies. This segment also manufactures tubes and tube core products, which are the largest revenue-producing group of products for Sonoco. Segment profits were up 17.5% in 2014 and 38% of total company sales came from this segment.

Contributing 13% of 2014 sales was the Display and Packaging segment, which, produces point of purchase displays and custom packaging among other items, and provides supply chain management for customers. Companies served are in a variety of businesses including the automotive, food, electronics, and home and garden markets.

Finally, the Protective Solutions segment contributed 10% of Sonoco’s 2014 sales. This segment manufactures custom-engineered packaging designed to provide protection during shipping and storage.

In 2014, Sonoco’s net sales were up about 3% to $5 billion and net income was up 9.1% to $239 million. Earnings per share were up 9.4% to $2.32. With the current annual dividend of $1.28, Sonoco has a payout ratio of 55.1%.

Sonoco currently gets 35% of its sales from overseas operations, and expects to increase that in the future. The company has shown increased capital spending from facility expansion in Asia and Europe, specifically Poland. In addition, Sonoco has acquired several companies over the last few years, including the $360 million acquisition of the privately held Weidenhammer Packaging Group in October 2014. Prior to the acquisition, Weidenhammer was Europe’s largest distributor of composite cans and rigid plastic containers. Sonoco expects the acquisition to add 9 – 14 cents per share to 2015 earnings. In general though, the increased focus on international sales means that there will be additional pressure on earnings as the dollar strengthens.

The company is a member of the S&P Mid Cap 400 index and S&P’s High Yield Dividend Aristocrats index, and trades under the ticker symbol SON.

Sonoco’s Dividend and Stock Split History

Sonoco Products Dividend Growth

Annual dividend growth for Sonoco Products has ranged between 1 and 9%, and has averaged about 4.9% over the last two decades.

Sonoco Products Company has increased dividends since 1983. Since 2011, Sonoco has increased dividends in the 2nd quarter of the year, announcing the dividend increase in mid-April with the stock going ex-dividend in mid-May. In April 2015, Sonoco announced a 9.4% increase in the dividend to $1.40 per year. I expect Sonoco to announce its 34th year of dividend increases in April 2016.

Since 1999, the company’s dividend increases have ranged from less than 1% to this year’s 9.4%. Compounded, the dividend increases have been in the 4 – 5% range. Sonoco’s 5-year compounded annual dividend growth rate (CADGR) is 4.49%, its 10-year CADGR is 4.18%, and its 20-year CADGR is 4.86%.

Sonoco Products has split its stock once – a 2-for-1 split in June 1993.

Over the 5 years ending on December 31, 2014, Sonoco Products stock appreciated at an annualized rate of 12.17%, from a split-adjusted $24.44 to $43.40. This underperformed the 13.0% annualized return of the S&P 500 and the 14.9% annualized return of the S&P Mid Cap 400 index during this time.

Sonoco’s Direct Purchase and Dividend Reinvestment Plans

Sonoco Products Company has both direct purchase and dividend reinvestment plans. The fee structure is very favorable to investors, with no transaction or other fees for purchasing shares either directly or through dividend reinvestment. The only fee for either plan is a $10 transaction fee to sell shares in the plan.

When investing directly through a cash purchase, the minimum investment is $50.

Helpful Links

Sonoco Products Company’s Investor Relations Website

Current quote and financial summary for Sonoco Products Company (finviz.com)

Information on the direct purchase and dividend reinvestment plans for Sonoco

 

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