Sonoco Products: Packaged Profits

12/28/2015 7:00 am EST


David Fish

Executive Editor, Moneypaper

The idea of owning a stock for years, if not decades, is uncommon, as is the notion of doing thorough research into potential purchases, explains David Fish, dividend reinvestment expert and editor of MoneyPaper.

More importantly, most investors fail to think of themselves as part owners in the businesses that are represented by each stock and the level of understanding of the intricacies of those businesses is woefully thin.

The best course is to spend the time and effort to conscientiously construct a portfolio of stocks that can stand the test of time and provide a diverse mixture of industries that will take advantage of changing conditions.

Beyond that, the discipline to resist emotional responses to market tumult is paramount to shepherding that portfolio through the potential ravages of changing conditions.

Our latest featured recommendation is well suited to long-term investors interested in dollar-cost average and dividend reinvestment plans.

Founded in 1899 and once known as the Southern Novelty Company, Sonoco Products (SON) is a leading producer of paper-based tubes and cores, flexible packaging, plastic containers, and point-of-purchase displays.

It serves the food, appliance, furniture, automotive, hotel, healthcare, 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 total about $5 billion this year and the consensus estimate of 14 analysts call for Sonoco to earn about $2.49 per share this year and to net about $2.71 in 2016, compared with $2.54 in 2014.

The dividend, which provides a 3.2% yield, has been increased for 33 consecutive years.

What makes Sonoco attractive is its global reach, combined with its nature as a basic provider of goods that serve a need found in most industries: packaging. No matter where or what is manufactured, it requires packaging to transport it to customers.

The current p/e ratio is above 18 and earnings are expected to be relatively flat this year.

However, it would be wise to focus instead on next year, when earnings are expected to rise 8.8% (translating to a p/e of about 16) and the next five years, when earnings should grow better than 5% a year.

The company is likely to keep raising its dividend, as it has annually for over three decades, enhancing the compounding of a growing position, especially if an investor utilizes dollar-cost averaging over the long haul.

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