Today’s full-year results report from Smurfit Kappa (LSE: SKG) has sent the shares higher – up more than 7%, as I write.
The paper-based packaging provider is one of my favourite FTSE 100 companies. I reckon the firm is a big player in a defensive industry with plenty of ongoing opportunities to grow. And the financial and trading record suggests Smurfit Kappa has carved out a strong and defendable niche in its markets.
A good trading record
Indeed, the five-year record shows generally rising revenue, earnings and cash flow, supporting a dividend that’s risen by around 90% over the period. And City analysts following the firm expect mid-single-digit percentage increases in the dividend for at least the next couple of years. I suspect the dividend has a good chance of continuing higher in the years beyond that.
On top of that, the share price has moved up more than 100% over five years, so shareholders have enjoyed capital gains as well as a rising income from the dividend.
Meanwhile, with the share price close to 2,922p, the forward-looking earnings multiple for 2021 sits just above 12 and the anticipated dividend yield is almost 3.3%. The valuation remains attractive to me, and I see the shares as an appealing buy for the long haul – ideal for my retirement portfolio.
Today’s figures for 2019 reveal to us that revenue rose 1% in the period compared to the year before, and pre-exceptional earnings per share eased back 6%. But there was a strong showing from free cash flow, which elevated by 11%, and EBITDA rose 7%. The directors expressed their approval and confidence in the outlook by slapping almost 12% on the total dividend for the year.
Long-term growth potential
Chief executive Tony Smurfit explained in the report that the firm strengthened its integrated business model with the acquisition of Reparenco in 2018, which is a paper and recycling business in the Netherlands. There were also recent acquisitions in France, Bulgaria and Serbia, which extended the geographic reach of operations.
Smurfit reckons the company has a “unique” market offering with “a suite of industry-leading applications that are impossible to replicate.” As such, the company is “well-positioned” to benefit from the industry’s long-term growth potential. Meanwhile, trading in the current year has started well and he expects another year of “strong” free cash flow and “consistent” progress.
Smurfit Kappa is one of several companies I see as evergreen performers, and I’d feel confident enough to view pull-backs in the share price as opportunities to buy. That applies even if the firm is facing temporary challenges. Of course, we can never be sure what the future will bring, but the company has a good track record, and I reckon the share would sit well in my diversified portfolio.
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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.