Mondi (LSE: MNDI) has proven to be a dream over the past five years for those investors specifically seeking exceptional dividend growth.
Not only have ordinary dividends risen by more than 70% during that period, culminating in 2018’s dividend of 62 euro cents per share, but the FTSE 100 packaging ace has also been minded to throw out special dividends during this time.
Last year Mondi decided to pay out a 100-cent special payment on the back of its “strong financial position and confidence in the group’s cash-generating capacity.” Cash generated from operations stood at just north of €1.3bn during 2017, a performance which drove net debt €57m lower to €1.3bn.
Investing for growth
Mondi is also putting this cash to work through major capital investments to create future growth. Capital expenditure clocked in at €611m last year, and the business currently has in excess of €750m stashed into its major capital expenditure project pipeline.
Major upgrades have been scheduled for its facilities in Russia, Slovakia and Czechia (the former Czech Republic), including a hefty €335m modernisation programme for its Štĕtí kraft paper plant north of Prague, which will include replacement of the recovery boiler, rebuilding the fibre lines and de-bottlenecking existing packaging paper machines.
Mondi intends to report another heavy capex bill of up to €800m in 2018 and 2019 as spending on these ambitious projects increase. Such is the strength of the Footsie firm’s balance sheet that it remains active on the M&A trail too. Just last month it completed the takeover of Egyptian industrial bag manufacturer National Company for Paper Products last month for €24m.
Benefits of diversification
Organic investment and takeover activity in key emerging regions like Central and Eastern Europe is a shrewd step given the favourable demographic factors and mighty GDP improvements here.
As it stands, Mondi has a splendid wingspan across both developed and developing territories, the business operating in more than 30 countries mainly across Europe, Russia, North America and South Africa.
Giving earnings visibility that little extra boost, the Footsie firm’s wide range of customisible products can be used across tens of thousands of different applications in industries from auto manufacturing and construction through to the manufacture of medical goods.
This global and operational diversification reduces the company to any earnings bumpiness due to difficulties in one or two countries or sectors, and has allowed it to keep reporting solid bottom-line growth year after year, the bedrock of any progressive dividend policy.
Dividends on the march
It shouldn’t come as a surprise that profits are expected to grow again in 2018, helped by the ongoing recovery in increased input costs — a 12% rise is currently predicted by City analysts. And assisted by the aforementioned upgrades to its plants in Europe and Russia, profits are anticipated to grow an extra 5% next year.
As a consequence, the ordinary dividend is predicted to grow to 70 euro cents per share this year and again to 73 cents in 2019, figures that create chunky yields of 3% and 3.1% respectively. One cannot rule out the possibility of further special dividends in the medium term either.
At current prices, Mondi carries an undemanding forward P/E multiple of 14.1 times. This is a bargain in my opinion given the company’s exceptional earnings and dividend outlook in the near term and beyond.
