Secular Trends Support These Three Dividend Payers
The Q3 earnings season is about to kick into high gear and from what we’ve seen, it could be a volatile season. While the bulk of S&P 500 are expected to report YOY revenue and earnings growth, and growth above the current consensus estimates, there are mounting headwinds to be worried about.
Headwinds like labor shortages, input costs, and freight are having no small impact on both the top and bottom lines for many businesses whether they are in the S&P 500 or not. Today, we’re looking at two company’s that should not only be able to survive in these challenging times but thrive. In both cases, these company’s pay healthy dividends and come with a favorable outlook for dividend growth.
1. Packaging Corporation Of America To Hit Record High
Even with the destruction caused by Hurricane Ida, Packaging Corporation of America (NYSE:PKG) is expected to produce revenue at record levels. Not only is the company expected to see growth on a sequential and year-over-year basis, but on a 2-year basis as well with revenue topping $1.94 million.
Growth should be supported by demand in all segments and bolstered by the company's efforts to boost containerboard production. Those efforts were themselves spurred but the rise of eCommerce and the acceleration of eCommerce that was driven by the pandemic. Now, with demand so high it's causing massive changes within the global supply chain, we see upside risk in the numbers.
Packaging Corporation of America yields about 2.88% with shares trading near $140. The payout is relatively safe at 48% of consensus earnings and comes with a 12% CAGR. The Marketbeat.com dividend history lists only 1 year of dividend increases, but that's only one year of consecutive increases.
Packaging Corporation of America does not make regular annual distribution increases but does regularly increase the distribution and it’s only ever increased its distribution. As for the balance sheet, the company is lightly levered at 5.25X free cash flow and coverage is more than adequate. The company has room to raise the dividend with or without revenue and earnings increases, and we are expecting revenue and earnings to increase.
2. Movado Group, Luxury At A Deep Value
Movado Group (NYSE:MOV) manufactures and markets a range of watches and other lifestyle items globally. The company's business took a hit during the pandemic but has since bounced back and is very strongly driven by a renewed focus on eCommerce. The company is expected to post record revenue in the coming quarter and earnings to match.
While revenue growth will slow from the near triple-digit pace it has set for the last two quarters, it will remain strong and in the double digits. This is important to note because the consensus estimate puts the company on track to bring in more than 75% of the full-year consensus for earnings by the third quarter with the strongest earnings season of the year still ahead.
Movado Group pays a lower 1.85% yield, but it is more attractive in every other way. The payout ratio is super low at 20% and there is a high expectation for dividend growth. The company suspended its dividend during the pandemic to maintain its fortress balance sheet and good for them.
Now, with revenue and earnings surpassing the pre-pandemic levels and the distribution reinstated and only at the pre-pandemic level, we expect the company to resume its tradition of annual increases. In our view, investors could expect a high single-digit to low double-digit increase as soon as the current quarter.
Shares of Movado Group appear to be holding firm support at the $32 level. Movado Group is expected to report earnings at the end of November.
