Packaging Corporation of America (PKG) and spreadsheet

[Dividend Watcher]

Packaging Corporation of America

GICS Sector: Materials
Sub-Industry: Paper & Plastic Packaging Products and Materials

I was primarily looking at PKG as a comparison to Sonoco Corp (SON) as I had recently done a deeper dive into SON. It appears that PKG was a faster growing company but their dividend performance was a little disappointing.

Description Of The Company

From PKG's 2024 annual report ...

Quote:Packaging Corporation of America is the third largest producer of containerboard products and a leading producer of uncoated freesheet (UFS) paper in North America. We operate eight mills and 86 corrugated products plants and related facilities. We are headquartered in Lake Forest, Illinois and operate primarily in the United States.

Our containerboard mills produce linerboard and corrugating medium, which are papers primarily used in the production of corrugated products. Our corrugated products manufacturing plants produce a wide variety of corrugated packaging products, including conventional shipping containers used to protect and transport manufactured goods, multi-color boxes and displays with strong visual appeal that help to merchandise the packaged product in retail locations, and honeycomb protective packaging. In addition, we are a large producer of packaging for meat, fresh fruit and vegetables, processed food, beverages, and other industrial and consumer products. Our products are sustainable and are produced from renewable raw materials, predominately using energy derived from biogenic fuels in our production processes and are recyclable at end-of-life.

I don't have records for the years prior to the Great Recession of 2008-2009 but the dividend was cut in 2009 breaking any streak they had attained up until then. The dividend again started to grow in 2011. The dividend grew at a 16.5% rate until 2022 when it was frozen. Compare that with the EPS growth of 15.1% over the same period. There have been no increases in the dividend since. At least the company hasn't been foolishly spending their money; common shares have held relatively constant since 2022 and common equity has increased as their earnings have gone up.

What I like:

• The operations are solely in North America, specifically the USA, so exposure to trade disruptions is minimized.
  
  
• Their growth since the Great Financial Crisis (GFC) has been very good for a commodities company. Analysts are predicting a slowdown in earnings over the next several years due to projected economic conditions but we'll have to wait and see.
  
  
• They don't seem to be wasting money on non-accretive acquisitions.
  
  
• They are broadly diversified geographically across the USA so transportation costs can be minimized.
  

What Concerns Me:

• They are concentrated and dependent on the US economy for results.
  
  
• They primarily use raw materials in their production exposing them to fluctuating input costs
  
  
• Despite a relatively low payout ratio and robust earnings growth, no changes in the dividend have occurred since 2022.
  

If you're interested, please take a look at the spreadsheet and provide feedback both on my spreadsheet presentation and also about Packaging Corporation specifically.