Investors looking for high-yield dividend stocks typically don't expect them to generate alpha. But in some cases, they do. Take Sonoco Products (SON +0.94%), for example.
Sonoco Products is not the oil and gas company, which is spelled differently. Sonoco Products makes packaging -- metal, paper, and plastic packages for consumer and industrial uses.
It's not a stock many people know, but Sonoco is not only paying an above-average dividend yield; it is also beating the S&P 500 and the Nasdaq.
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Sonoco crushes S&P 500 and Nasdaq
Sonoco's stock has posted impressive numbers this year. The stock has returned 30% year to date, beating the Nasdaq's 10.3% and the S&P 500's 8.5%.
Further, the stock has a dividend yield of 3.78%, well above the S&P 500 average. It has also boosted its dividend annually for the past 43 consecutive years. If it keeps boosting the payout annually for seven more years, it will be a Dividend King.
Sonoco Products is coming off a quarter in which sales dropped 2%, but earnings rose 26% year over year to $0.68 per share. This is largely due to an expense-reduction plan that led to a 4% drop in selling, general, and administrative expenses in the latest quarter.
Sonoco's Profitability Performance Plan targets $32 million in savings this year and $150 million to $200 million over the next three years. It is also streamlining operations by selling off some of its lower-performing assets, like ThermoSafe. The expense reductions will offset some of the higher material costs the company is experiencing due to inflation and tariffs.
NYSE: SON
Key Data Points
Also, net sales will stall out in fiscal 2026, as the company guides for revenue between $7.25 billion and $7.75 billion, which would be on par with last year at the midpoint. Further, cash flow from operations is anticipated to be between $700 million and $800 million, up slightly from last fiscal year.
Sonoco has more room to run
Sonoco's stock has rallied this year mainly due to its cost-cutting initiative and the pivot to consumer packaging from industrial. Consumer packaging is a higher-margin business and less cyclical than industrial packaging. The company has been steadily increasing consumer sales, and the consumer side now makes up about 67% of its total sales, up from 42% in 2020.
Sonoco has strong cash flow, a low payout ratio of 38%, and is fully committed to its dividend. It has raised its dividend for 43 straight years and has paid a dividend for 404 straight quarters (since 1925).
While analysts expect only 2% earnings growth in fiscal 2026, they see 10% growth in 2027, likely due to the benefits of the pivot and the Profitability Performance Plan kicking in.
Roughly 50% of analysts rate Sonoco as a buy, while 50% rate it a hold. It has a median price target of $63 per share, which suggests 12% upside.
Plus, the stock is still dirt cheap, even after the 29% surge. It is trading at 9 times forward earnings and has a minuscule five-year PEG ratio of 0.20, which makes it a great value and a good buy -- for both dividends and returns.
