This article is part of our weeklong series on 11 incredible dividend stocks. You can get the low-down on this series by clicking here.
Nobody said dividend investing had to be sexy -- nor do you have to fall in line behind the age-old dogma that only the largest corporations in the world pay out the best dividends. Sometimes, the most impressive dividend growth can be found right under our noses, yet we're completely oblivious to it. For this reason, I've chosen to highlight a company whose broad product line litters our daily lives – and you've probably never even heard about it! The company's name is Bemis (NYSE: BMS ) , and I suggest you get closely acquainted with this "no-name."
Bemis may not be a household name, but the company probably has its handiwork scattered throughout your own home. Bemis manufactures and sells flexible packaging products and pressure-sensitive materials worldwide. The business itself is broken down into two segments:
- Flexible packaging products: This segment makes flexible polymer film structures and laminates for the food, medical, and personal care sectors. In simpler terms, think about that bag of salad you bought, that package of batteries in your drawer, or that pill you took last week. Chances are the packaging materials used to hold these products could have been produced by Bemis.
- Pressure-sensitive materials: This segment primarily caters to the electronics and graphics sectors, which use Bemis' products for everything from high-speed printing and die-cutting, to pressure-sensitive films used for graphic designs.
Following the largest acquisition in the company's 153-year history of Alcan Packaging Products from Rio Tinto (NYSE: RIO ) in 2009, Bemis has seen full-year revenue soar to $4.84 billion. Although not a crowded space, Bemis' closest competitor is Avery Dennison (NYSE: AVY ) and to some extent Sonoco Products (NYSE: SON ) , although Sonoco provides inflexible packing materials (cardboard, paper, and metal).
|5-Year Dividend Growth Rate||5%|
|Has Paid Dividend Without Interruption Since||1922|
|Streak of Consecutive Annual Dividend Increases||28|
Why it's incredible
One of Bemis' greatest advantages is that it doesn't sell its products directly to the public. By dealing with individual businesses and business segments, Bemis is able to regularly control its cash flow and increase its booked business without having to deal with the fickle and ever-changing tastes and trends of consumers.
Another aspect of Bemis that is sheer genius is the way in which it structures its contracts. Having deals in place with Johnson & Johnson (NYSE: JNJ ) , Kraft Foods, H.J. Heinz, and Procter & Gamble (NYSE: PG ) allows for near-guaranteed demand, but would leave most investors concerned if material costs begin to rise. Bemis has taken this into account and has structured many of its contracts so that it can pass along rising material costs to these companies without affecting its margins or breaching its contract.
Also consider how experienced the management team is at Bemis. The executive chairman of the board, Jeffrey Curler, has been with Bemis since 1973, while CEO Henry Theisen and Executive Vice President Gene Wulf have been with the company since 1975. Impressive companies are derived from superb and cohesive management teams. Suffice it to say, shareholders are in great hands with more than 35 years of experience at the helm.
Like many of the companies that will be presented in this series, Bemis is part of the S&P 500 Dividend Aristocrat Index, thanks to its impeccable record of raising its dividend for the past 28 years. In the past decade, shareholders have seen a 92% jump in their quarterly payout, which becomes even more impressive considering that we recently exited the worst financial downturn in our economy in roughly seven decades.
|FY 2006||FY 2007||FY 2008||FY 2009||FY 2010||FY 2011 (estimate)|
Not only has Bemis paid out an increasing dividend, but it also leaves itself ample room to move that dividend higher. Historically, payout ratios (simply the amount of its earnings that it pays out to shareholders in the form of a dividend) in excess of 80% can be a warning sign that a company's dividend is unsustainable. In this case, it appears the dividend at Bemis is relatively safe. If anything, shareholders could see a more substantial dividend bump than they are accustomed to in the future, since the projected payout ratio by fiscal year-end 2011 is less than 44%.
No company is risk-proof, and the same goes for Bemis. The company shares one particular danger with its competitors: rising raw material costs. As stated earlier, Bemis factors the potential for rising costs into its contracts, but rapidly rising petroleum prices are a lose-lose for the entire sector. At some point, costs will jump enough to deter consumers from purchasing products from stores, which will in turn work its way up the merchandising chain to Bemis.
Another concern is Bemis' ability to grow, a fear that future acquisitions will hopefully allay. Prior to the company's purchase of Alcan, Bemis had been growing at a snail's pace. The catch-22 is that while Procter & Gamble, Johnson & Johnson, Heinz, and Kraft provide a lot of guaranteed income to Bemis, these companies also grow at relatively slow rates, thus capping some of Bemis' potential. If Bemis can continue to successfully integrate new businesses with its already existing business segments, it should be just fine.
Bemis may not be a large cap, or have the most exciting business, but the company is capable of delivering hefty payouts to shareholders, as its history has shown. Great companies are made of solid management teams, steady cash flow, and solid balance sheets. Bemis has the leadership to move forward, an elite group of customers, and a highly sustainable dividend that could evoke a "set it and forget it" mentality.
Still looking for more ideas on strong dividend-paying companies? Check out our latest free report 13 high-yielding dividend stocks. Also be sure to check back as there are more incredible dividends yet to come in this series.