I’m hunting for shares to boost my passive income. One income stock I like the look of is Smurfit Kappa (LSE: SKG). Here’s why.
Packaging products
Smurfit manufactures and sells paper-based packaging products throughout Europe and the Americas. Europe is where it makes most of its money. The company is involved in the whole process of the production including owning mills that produce the materials before they are then made into the necessary packaging products.
So what’s happening with Smurfit shares at present? As I write, they’re trading for 3,220p. At this time last year, they were trading for 3,068p, which is a 5% increase over a 12-month period. This is noteworthy as many UK shares have fallen in recent times due to macroeconomic issues including rising inflation and interest rates.
An income stock I like
To start with, Smurfit shares possess a 4% dividend yield at present, which would boost my passive income. I am aware that dividends are never guaranteed and can be cancelled at any time.
Next, Smurfit shares look decent value for money right now on a price-to-earnings ratio of 11. I believe the share price could experience some growth too.
Moving on to performance, I can see Smurfit has grown revenue and profit for the past two years. In addition to this, it performed well recently, as shown in its half-year report released last week, despite macroeconomic challenges. These include rising costs and weakened demand as less packaging is required if consumers are spending less. However, I do understand that past performance is not a guarantee of the future.
Finally, demand for packaging is at an all-time high and many experts reckon this upward trend will only continue. This is because of the rise of e-commerce and online shopping. Shopping habits have changed and as more people turn towards online channels, packaging is required. Smurfit should benefit from this, in turn, boosting future earnings and investor returns. This is a key trait for me when looking at any income stock, the potential for growth in the years ahead.
Risks to note and what I’m doing now
From a bearish perspective, Smurfit is at the mercy of macroeconomic headwinds, as mentioned earlier. Rising costs can squeeze profit margins as well as shareholder returns. Furthermore, due to rising inflation and costs, many consumers have less to spend on non-essential items, which could hinder demand for packaging products and adversely impact performance and returns.
Another aspect to consider is that initiatives aimed at a net-zero carbon footprint could hinder Smurfit’s demand and performance. The good news here is that Smurfit is already undergoing an eco overhaul to ensure it remains environmentally friendly in its practices.
Overall I like Smurfit Kappa as an income stock option for my holdings. Performance history looks good and the current dividend on offer is enticing. Finally, I believe its products will only increase in demand as time goes on due to shopping habits changing. I’d buy some shares if I had the spare cash to invest.
