Updated May 17, 2021 by Bob Ciura
The Dividend Aristocrats are a group of 65 companies in the S&P 500 Index with more than 25 consecutive years of dividend increases. The Dividend Aristocrats each have strong business models with competitive advantages that allow them to increase their dividends every year.
There are currently 65 Dividend Aristocrats. You can download an Excel spreadsheet of all 65 Dividend Aristocrats (with key financial metrics like price / earnings ratios and dividend yields) by clicking the link below:
To become a dividend aristocrat, a company must have a profitable business model and lasting competitive advantage, as well as the ability to grow dividends even during recessions. Consumer staples like Amcor plc (AMCR) have all the necessary qualities of a dividend aristocrat.
Amcor has increased its dividend for over 25 consecutive years. Thanks to a very strong brand portfolio, the company was able to maintain its dividend growth streak.
Amcor plc, listed on the NYSE today, was founded in June 2019 with the completion of the merger between two packaging companies, Bemis Co. Inc., based in the United States, and Amcor Ltd. based in Australia. Amcor plc is currently headquartered in Bristol, UK a large cap stock with a market capitalization of over $ 17 billion.
Amcor designs and manufactures a wide variety of packaging products for many consumer applications around the world, including food and beverage, medical and medical products, and household and personal care products. It consists of two main business areas: flexible packaging and rigid packaging.
The company has a long history of steady growth.
Source: Investor Presentation
Amcor recently reported financial results for the third quarter of fiscal year 2021 for the period ended March 31, 2021. Adjusted for currency effects, earnings per share rose by 16% compared to the previous year. Revenue declined slightly in the quarter, but the company posted earnings per share growth due to cost reductions and share buybacks.
Bemis-related cost synergies totaled $ 55 million for the first three quarters, while Amcor repurchased 2% of its outstanding shares in the first three fiscal quarters.
Regardless of this, Amcor has updated its outlook for the full fiscal year. The company now expects adjusted EPS growth of 14% to 15% for fiscal 2021, compared to previous expectations of 10% to 14%.
Amcor expects to acquire Bemis for strong growth over the next half decade. The main drivers that will drive this growth acceleration are global footprint, which opens up new attractive end markets and customers for the company’s products, and greater economies of scale that increase efficiency and higher margins.
Another growth catalyst for Amcor is emerging markets like China and Latin America, where economic growth is high and demand for packaging products is increasing.
Source: Investor Presentation
The company is also in the middle of an aggressive share buyback program that should boost growth per share. Additionally, the balance sheet is quite strong with a leverage ratio of 3.0x, which gives it flexibility to fund its dividend, buy back shares, and remain opportunistic with future growth opportunities.
We believe that all of these factors combined should produce robust 5% annual earnings per share growth for the next half decade.
Competitive advantage and recession performance
Amcor’s competitive advantages are strengthened by its industry leadership. Although Amcor is headquartered in Europe, its largest markets are in America. That means Amcor should be reasonably safe from possible future falls in the pound (or Australian dollar).
In addition, Amcor’s products are used every day around the world. People around the world will continue to need packaging. Amcor’s focus on recyclable and reusable products should appeal to more conscious end users, while the merger with Bemis offers tremendous opportunities in developing markets.
By merging into one gigantic manufacturing unit, Amcor has also improved its ability to negotiate better costs with its suppliers. This should make Amcor an unstoppable force in the packaging industry.
Amcor is also quite resistant to recessions. Since Amcor as it exists today (post-merger) was not a publicly traded company during the Great Recession, earnings per share performance during the downturn is not available.
It can be assumed that Amcor’s earnings per share would decline somewhat during a recession, as the company’s global business model is dependent on economic growth. However, for the foreseeable future, it should continue to pay (and increase) its dividend every year.
Valuation and expected returns
We expect Amcor to have earnings per share of $ 0.73 in 2021. On this basis, Amcor shares are currently trading at a price / earnings ratio of 17.
Even using a conservative multiple, we think a recession-resistant dividend aristocrat with a mid to high single digit growth prospect like Amcor should trade for 15x earnings. We therefore currently see the share as being slightly overvalued.
Should the stock return to 15x earnings, that means the potential for annualized valuation headwinds of -2.5% over the next five years.
A strong expected earnings per share growth rate of five years (5%) and the dividend yield of 3.8% will help increase shareholder returns. Overall, we expect a total annual return of around 6.3% through 2026.
Every year we review each Dividend Aristocrat individually. There were three additions to the list for 2021, bringing the total to 65. The Dividend Aristocrats In Focus 2021 series ends with Amcor.
Amcor is uniquely positioned for strong growth in the years to come thanks to its recent acquisition, which has opened several new attractive end markets and offers the opportunity to unlock valuable synergies. Additionally, the company has the balance sheet to fund growth investments and share buybacks that should boost EPS going forward.
While we believe the stocks are stretched a bit relative to our fair value estimate, we nonetheless believe that the stocks here offer reasonable value. With an expectation of ~ 6% annualized total return for the next half decade, we currently view Amcor as a hold.
Still, dividend growth investors with more conservative outlooks might want to take a look, as the S&P 500 has an above-average return of 3.8% and its strong growth record and recession-resistant business model make it an attractive long-term investment .
Finally, with its robust growth outlook, it will likely keep increasing its dividend for the foreseeable future.
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