Packaging Company Is Very Attractive

This morning I am recommending the purchase of consumer packaging Sonoco Products (SON). 

This company is all about quarterly income, so you can either start building a position today before it goes ex-dividend or start tomorrow once the $0.45 payment per share is assigned.

It’s all a question of whether you would prefer to avoid the 2021 income tax on the dividend and possibly get in at a lower price by waiting. On the other hand, if you’re worried about taxes rising, starting the cash clock running today may be a more compelling alternative.

Either way, SON is an old and successful company, having paid quarterly dividends for the past 380 quarters. That’s 95 years. Right now, we can lock in about 3% a year, which is not bad.

No company reaches this level of reliability without a stable corporate culture that emphasizes consistent operating results, tangible returns on invested capital and strong free cash flow.

Valuation is reasonable relative to the market as a whole. You’re paying about 15.8X next year’s earnings and getting that yield as a bonus, effectively replacing the role that Treasury debt once played in a balanced portfolio while still getting exposure to a vibrant stock.

We’re only able to get in here at this price because of ambient fears around the supply chain crisis.

Costs are rising but so are the prices SON charges. As more companies pass on inflation to their customers, I look to see the pain pass fast.

Buy SON under $63. My target is $70. Please note that the stock goes ex-dividend tomorrow, so if you are willing to forego the dividend, you can potentially get the stock at a lower price and avoid the 2021 income tax. In that scenario, wait until tomorrow to buy the stock.