Updated on May 17th, 2021 by Bob Ciura
The Dividend Aristocrats are a group of 65 companies in the S&P 500 Index, with 25+ consecutive years of dividend increases. The Dividend Aristocrats each have strong business models, with competitive advantages that provide them with the ability to raise their dividends each year.
There are currently 65 Dividend Aristocrats. You can download an Excel spreadsheet of all 65 Dividend Aristocrats (with important financial metrics such as price-to-earnings ratios and dividend yields) by clicking the link below:
In order to become a Dividend Aristocrat, a company must possess a profitable business model and durable competitive advantages, along with the ability to raise dividends even during recessions. Consumer staples stocks such as Amcor plc (AMCR) have all the necessary qualities of a Dividend Aristocrat.
Amcor has increased its dividend for over 25 years in a row. It has maintained its dividend growth streak thanks to a very strong brand portfolio.
Amcor plc that trades on the NYSE today was formed in June 2019 with the completion of the merger between two packaging companies, U.S.-based Bemis Co. Inc. and Australia-based Amcor Ltd. Amcor plc’s current headquarters is in Bristol, U.K. Amcor is a large-cap stock with a market capitalization above $17 billion.
Amcor develops and manufactures a diverse array of packaging products for many consumer uses all over the world, including food and beverage, medical and medicinal, and home and personal care. It consists of two main business segments: Flexible Packaging and Rigid Packaging.
The company has generated a long history of steady growth.
Source: Investor Presentation
Amcor recently reported financial results for its fiscal 2021 third quarter for the period ended March 31st, 2021. On an adjusted basis, earnings-per-share rose 16% year-over-year in constant currencies. Revenue was down slightly for the quarter, but the company produced earnings-per-share growth from cost reductions and share buybacks.
Bemis-related cost synergies totaled $55 million over the first three quarters, while Amcor repurchased 2% of its outstanding shares through the first three fiscal quarters.
Separately, Amcor updated its outlook for the full fiscal year. The company now expects adjusted EPS growth of 14% to 15% for fiscal 2021, up from previous expectations of 10% to 14% growth.
Amcor is counting on its Bemis acquisition to drive strong growth over the next half decade. The main factors that will drive this growth acceleration are its global footprint opening up new attractive end markets and customers for the company’s products, and greater economies of scale driving efficiencies and higher margins.
Another growth catalyst for Amcor is the emerging markets such as China and Latin America, where economic growth is high and demand for packaging products is rising.
Source: Investor Presentation
The company is also in the midst of an aggressive share buyback program that should boost per share growth numbers. Furthermore, its balance sheet is quite strong with the leverage ratio at 3.0x, giving it flexibility to finance its dividend, share repurchases, and remain opportunistic on future growth opportunities.
We believe that all of these factors should combine to generate robust 5% annualized earnings per share growth over the next half decade.
Competitive Advantages & Recession Performance
Amcor’s competitive advantages are fueled by its industry leadership position. Although Amcor’s headquarters are in Europe, its largest markets are in the Americas. That means Amcor should be relatively safe from potential future declines to the pound (or to the Australian dollar, for that matter).
In addition, Amcor’s products are used every day around the world. People around the world will continue to need packaging. Amcor’s emphasis on recyclable and reusable products should appeal to more conscious end users, while the merger with Bemis brings it huge prospects in developing markets.
Plus, with the merger into one gigantic manufacturing entity, Amcor has increased ability to negotiate better costs from its suppliers. This should make Amcor an unstoppable force in the packaging industry.
Amcor is also fairly resistant to recessions. As Amcor as it exists today (post merger) was not a publicly-traded company during the Great Recession, its earnings-per-share performance during the downturn is not available.
It is reasonable to assume Amcor’s earnings-per-share would decline somewhat during a recession, as the company’s global business model is reliant on economic growth. But it should continue paying (and raising) its dividend each year for the foreseeable future.
Valuation & Expected Returns
We expect Amcor to generate earnings-per-share of $0.73 for 2021. Based on this, shares of Amcor are currently trading at a price to earnings ratio of 17.
Even using a conservative multiple, we think that a recession-resistant Dividend Aristocrat with mid-to-high single-digit growth prospects such as Amcor should trade for 15 times earnings. Therefore, we view the stock as slightly overvalued right now.
If shares were to revert to 15 times earnings, this represents the potential for a -2.5% annualized valuation headwind over the next five years.
A strong five-year expected earnings-per-share growth rate (5%) and the 3.8% dividend yield will help boost shareholder returns. Overall, we expect total annual returns of approximately 6.3% through 2026.
Each year, we individually review every Dividend Aristocrat. There were 3 additions to the list for 2021, bringing the total to 65. The 2021 Dividend Aristocrats In Focus series concludes with Amcor.
Amcor is uniquely positioned for strong growth in the coming years thanks to its recent acquisition that has opened up several new attractive end markets and provides an opportunity to unlock valuable synergies. Furthermore, the company has the balance sheet to fund growth investments, and share repurchases which should boost EPS moving forward.
As a result, even though shares look a tad stretched relative to our fair value multiple estimate, we still think that shares offer decent value here. With expectations of ~6% annualized total returns over the next half decade, we view Amcor as a hold right now.
That said, it might be worth a look for dividend growth investors with a more conservative outlook, as its 3.8% yield is above average for the S&P 500 and its strong growth track record and recession-resistant business model make it an attractive long term holding.
Finally, with its robust growth outlook, it will likely continue growing its dividend for the foreseeable future.