Having suspended its final 2019 dividend in April, Mondi (LSE: MNDI) announced today that it would be resuming dividend payments. Along with a fairly strong trading update, this has seen the stock price of the paper and packaging company rise significantly. But I believe that this rise is set to continue, and I’d therefore buy the FTSE 100 stock today.
Trading update
Although profits were hit by the pandemic, the damage at Mondi was limited compared to many other FTSE 100 stocks. Operating profits were €518m in the first six months of the year, compared to €679m in the same period last year.
The main reason for the dip in profits was the downturn within the paper industry. With offices around the country shut, the demand for paper has been significantly lower, which led to lower selling prices. As such, operating profits from the paper segment were €106m, down 45% on last year. Even so, the firm has stated that order books have improved throughout June and July, even if demand is still weaker than normal.
On the other hand, profits from the packaging sector were more resilient. In fact, profits from both the corrugated and flexible packaging segments were only down 11%. This indicates a very resilient performance in testing conditions, especially as factories were forced to shut at one point.
The FTSE 100 stock will pay a dividend!
One of the major positives from the trading update today was the news that Mondi will resume dividend payments. This has been enabled by the robust trading performance in the first half of the year, and its strong financial position. As a result, the company has declared a dividend of 29.75 euro cents, as well as an interim dividend of 19 cents. This total of 48.75 cents will go ex-dividend on 21 August. This means that all Mondi shareholders who purchase shares before this date shall be entitled to the payment.
The current dividend represents a yield of over 3%. Although slightly less than payments in the last few years, it’s still a very high yield in comparison to other FTSE 100 stocks. The company also has a dividend cover of between 2 and 3. As a result, it will still have money to deal with the impacts of the pandemic, as well as developing the business.
Strong financial position
The trading update also affirmed that Mondi has a very strong financial position. Net debt has actually decreased from €2.2bn to around €2bn, and this can be easily covered by operating cash flow.
The liquidity position is also very strong. In fact, the group has access to net cash of €606m and €805m of undrawn committed debt facilities. This large amount of cash should help the company deal with the crisis and capitalise on any opportunities that arise.
After this recent trading update, I’m very confident about the future of this FTSE 100 stock. The return of dividends is very welcome news, and the firm has evidently managed to cope well with the challenging environment. I’d therefore buy Mondi shares today.
