Investors often seek out high-yield dividend stocks, but these don’t always promise significant returns. However, sometimes they indeed can. Take, for instance, Sonoco Products (NYSE:SON).
It’s worth noting that Sonoco Products isn’t in the oil or gas sector, even if the name might suggest otherwise. Instead, the company is dedicated to producing packaging solutions, including metal, paper, and plastic, for both consumer and industrial markets.
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Now, while Sonoco might not be widely recognized, it does offer a dividend yield that surpasses the average. In fact, it’s outperforming both the S&P 500 and NASDAQ.
Sonoco Surpasses S&P 500 and NASDAQ
This year, Sonoco’s stock has delivered impressive results, achieving a 30% return year-to-date. This is quite a leap compared to the NASDAQ’s 10.3% and the S&P 500’s 8.5%.
Moreover, its dividend yield stands at 3.78%, notably higher than the S&P 500’s average. Sonoco has a remarkable track record, having increased its dividend every year for the past 43 years. If this trend continues for another seven years, it could earn the title of Dividend King.
Recently, Sonoco faced a quarter where sales slipped by 2%, but earnings showed a remarkable 26% increase year-over-year, with earnings hitting $0.68 per share. This growth primarily stemmed from cost-cutting initiatives, reducing selling, general, and administrative expenses by 4% in the latest quarter.
Looking ahead, Sonoco aims to save $32 million this year and expects a total of $150 million to $200 million over the next three years. The company is also taking steps to streamline its operations by divesting from some underperforming assets. These moves are essential as the company grapples with rising material costs due to inflation and tariffs.
For fiscal 2026, net sales are likely to remain steady, with projections between $7.25 billion and $7.75 billion—essentially flat compared to last year, at the midpoint. Operating cash flow is anticipated to be slightly up, ranging from $700 million to $800 million.
Sonoco Has Room for Growth
This year’s increase in Sonoco’s stock price can be attributed largely to its cost-cutting strategies and a strategic pivot from industrial packaging to consumer packaging. The latter typically offers a higher profit margin and is less susceptible to market cycles. Presently, consumer sales constitute about 67% of total sales, a significant rise from 42% in 2020.
Sonoco boasts strong cash flow and maintains a low payout ratio of 38%. With a consistent dividend history spanning 43 years, the company has continuously paid dividends for 404 quarters since 1925.
Although analysts project a modest 2% growth in earnings for fiscal 2026, they anticipate a rebound to about 10% growth in 2027, likely as a result of the company’s strategic realignment and the implementation of its profitability performance plan.
Currently, around 50% of analysts recommend Sonoco as a buy, while the other half suggest holding. The median price target stands at $63 per share, indicating a potential 12% upside.
Even after a notable rise of 29%, the stock still appears relatively undervalued. It trades at a forward P/E ratio of 9x and boasts a low 5-year PEG ratio of 0.20, presenting an attractive option regarding both dividends and returns.
Should You Consider Buying Sonoco Products Stock?
Before making a decision to invest in Sonoco’s stock, here are a couple of points to bear in mind:
The Motley Fool’s stock advisor team has highlighted what they view as the 10 best stocks available right now, and surprisingly, Sonoco doesn’t feature on their list. Those chosen stocks aim for long-term growth and hold the potential for impressive returns in the coming years.
Reflecting on the past, take Netflix: Had you invested $1,000 when it was first recommended on December 17, 2004, you’d be looking at $418,761 today. Or consider Nvidia: Investing $1,000 back on April 15, 2005, would have turned into $1,195,804! People tend to listen to such performance records, don’t they?
With its history of outperforming the S&P 500 by four times, the stock advisor could provide significant advantages. Don’t overlook their latest Top 10 list, as the community has been around for quite some time.
Keep in mind, investing comes with risks, and every decision should be well thought out.
