Buying shares of a company that makes plastic packaging may not sound like the most exciting investment out there. But there's nothing boring about the kind of returns that Berry Global Group (BERY -2.25%) could provide to investors over the next few years.

The company just initiated its first dividend payment and is buying back shares hand over fist. It's also growing revenue and adjusted earnings year over year, and its valuation looks attractive. 

A jumble of plastic prescription drug containers.

Image source: Getty Images

What is Berry Global? 

Berry Global is a worldwide leader in plastic packaging -- think cups, containers, tapes and adhesives, films and laminates, prescription-drug vials, and more. These products might sound mundane but are vital for the day-to-day functioning of a wide variety of industries, such as agriculture, food and beverages, medical, and shipping.

Berry is diversified across a wide array of end markets and geographies. Half of the company's revenue comes from the United States and Canada, 35% from Western Europe, and 15%  from Emerging Markets.

Meanwhile, home health and personal care make up 35% of the company's revenue; food and beverage packaging accounts for 30%; specialty products make up 25%; and distribution accounts for the remaining 10%. This helps to protect the company in the event of a downturn in any one industry or geographic area.

Berry CEO Tim Salmon says that this creates an "insulated demand profile" for the company. For the fiscal year that ended in September, Berry posted record results for both revenue and earnings per share. It grew revenue by 10% and adjusted earnings per share by 7%, versus the year prior. These numbers aren't spectacular, but they're solid and worthy of credit at a time of significant economic uncertainty.

A brand new dividend and active buybacks  

Berry Global recently initiated a quarterly dividend for the first time, and its shares currently yield 1.7%. This is in-line with the average yield for the S&P 500. While it might not sound like enough to move the needle for dividend investors, it's encouraging to see the company implement a dividend, which will help to add to investor returns over time. 

The company is also helping shareholders with extensive share buybacks. The board of directors recently increased the size of the company's share repurchase program to $1 billion, up from the $340 million remaining on its existing authorization. The company repurchased $709 million worth of shares, or about 9% of its shares outstanding, during the fiscal year that ended in September.

These buybacks reduce shares outstanding and increase earnings per share and can be a sign that management believes its stock is undervalued. The current buyback authorization of $1 billion is substantial, especially as the company's market capitalization stands at just under $7.5 billion. With the stock trading at such a cheap valuation, this seems like a good use of capital.  

Valuation

Berry Global's inexpensive valuation also make it an appealing value stock. The shares trade at just 10 times earnings, which is a sizable discount to the average multiple of about 16.5 times earnings for the S&P 500. The stock looks even cheaper with a forward price-to-earnings multiple of just over 7. It also looks attractive on a price-to-free-cash-flow basis, trading at a price-to-free-cash-flow multiple of just 8. 

A discussion of Berry Global's valuation has to include its relatively high debt load -- about $13.7 billion in total debt, as of the end of last quarter. This gives it a debt-to-equity ratio of about 2.9.But this debt serves a purpose. Berry has used it to make acquisitions in a fragmented industry, such as its $6.5 billion acquisition of RPC in 2019, which increased its presence in Europe.

Furthermore, the company is chipping away at paying this debt down, reducing it by about $1 billion since its last fiscal year, making it the third year in a row that Berry has delevered.

Multiple ways to win 

I would like to see Berry continue to pay down debt, and it seems that it's on that path. As it continues to do this, more of the value of the company should accrue to equity holders.

Berry Global may not be a company that anyone is going to make a movie about, but its stock offers shareholders multiple ways to win. The combination of share repurchases, deleveraging, dividend payments, and a low valuation will likely lead to significant returns for investors over the next few years.