Sonoco Products: Paper Profits

08/28/2013 8:00 am EST


David Fish

Executive Editor, Moneypaper

Our latest featured stock for dividend reinvestment plans is a company that was founded in 1899, reports DRIP specialist David Fish in Direct Investing.

Once known as the Southern Novelty Company, Sonoco Products (SON) is a leading producer of paper-based tubes and cores, flexible packaging, rigid plastic containers, cylinder paperboard, wire and cable reels, and point-of-purchase displays.

It serves the food, appliance, furniture, automotive, hotel, health-care, restaurant, electronics, office supply, personal care, and textile industries, among others.

With over 300 operations in 35 countries, it derives more than one-third of its revenues from customers in 85 countries.

Sales are expected to approach $4.9 billion this year, and consensus estimates called for Sonoco to earn about $2.30 per share in 2013 and to net about $2.52 in 2014, compared with $2.21 in 2012.

The dividend, which provides a 3.3% yield, has been increased for 31 consecutive years.

The recent pullback in stock prices offers us an opportunity to buy shares a bit more cheaply, but many investors are reluctant to do so.

The reason is simple: Having seen stock prices double since the Great Recession, many have the impression that stocks are expensive, simply because they now trade near all-time highs.

But some perspective is in order. Our minds are making a comparison to a period when companies were quite undervalued and fear was rampant. The economy was suffering from a financial crisis that caught many off-guard.

Now we are in the midst of a slow but steady recovery, and inflation remains low. Companies are earning more, but their stocks carry only modestly higher price/earnings ratios.

The recent market highs only represent a return to the 2007 levels, not the historical growth that might have taken the Dow to 16,000 and beyond. That future is what investing today is meant to address.

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