The industrial paper industry is evolving to align with changing consumer preferences and incorporating innovative technologies to improve sustainability and efficiency.
So, investors looking for steady returns might consider quality industrial paper stocks Sylvamo Corporation (SLVM), International Paper Company (IP), Sappi Limited (SPPJY), and Klabin S.A. (KLBAY). These companies exhibit robust profitability and also pay stable dividends.
Statista projects the global pulp and paper market to reach approximately $373 billion by 2029. Moreover, globally, the demand for containerboard, the most widely consumed paper variety, is anticipated to surge by a substantial 27% from 2021 to 2032, reaching a staggering 226 million tons.
Furthermore, paper packaging is considered a versatile and cost-effective solution for protecting, preserving, and transporting various products. Fueled by e-commerce expansion and demand for folded carton packaging, the paper packaging industry is booming.
The packaging industry in the United States is expected to reach $478.68 billion over the next five years, growing at a CAGR of 2.9%.
In addition, environmental awareness is fueling demand for recycled paper, reducing the need for virgin pulp. Recycling innovations are also boosting efficiency and cost-effectiveness. Also, rising consumer preference for eco-friendly products is driving the demand for recycled paper.
The global paper recycling market will likely to expand at a CAGR of 4.2% until 2028.
With these favorable trends in mind, let’s delve into the fundamentals of the four Industrial – Paper stock picks, beginning with the fourth choice.
Stock #4: Sylvamo Corporation (SLVM)
SLVM produces and markets uncoated freesheet, cut size, offset paper, and pulp in Latin America, Europe, and North America. The company operates through Europe; Latin America; and North America segments.
SLVM’s trailing-12-month asset turnover ratio of 1.35x is 87% higher than the industry average of 0.72x. The stock’s trailing-12-month ROCE and ROTA of 61.58% and 10.52% are higher than the industry averages of 8.67% and 4.03%, respectively.
On July 27, 2023, SLVM paid the common stockholders a quarterly dividend of $0.25 per share. It pays $0.86 as dividends annually, translating to a dividend yield of 2.45%, higher than its four-year dividend yield of 0.86%.
During the fiscal second quarter that ended June 30, 2022, SLVM’s net sales increased marginally year-over-year to $919 million. Its net income and net earnings per share amounted to $49 million and $1.14, compared to a net loss of $59 million and $1.33 in the previous-year quarter.
Street expects SLVM’s EPS and revenue for the current quarter ending September 2023 to reach $ 1.35 and $916.70 million, respectively.
Over the past month, the stock has gained 2.2% to close the last trading session at $41.38.
SLVM’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has a B grade for Value and Quality. The stock is ranked #8 among ten stocks in the B-rated Industrial – Paper industry.
Click here to access the additional ratings for SLVM for Growth, Momentum, Stability, and Sentiment.
Stock #3: International Paper Company (IP)
IP produces renewable fiber-based packaging and pulp products in North America, Latin America, Europe, and North Africa. It operates through Industrial Packaging and Global Cellulose Fibers segments.
IP’s trailing-12-month asset turnover ratio of 0.83x is 14.5% higher than the industry average of 0.72x. The stock’s trailing-12-month ROCE and ROTA of 16.64% and 4.39% compare to the industry averages of 8.67% and 4.03%, respectively.
On July 11, IP declared a quarterly dividend of $0.4625 per share for the period from July 1, 2023, to September 30, 2023, inclusive, on the common stock, par value $1.00, of the company, payable on September 15, 2023.
While the company has a four-year average dividend yield of 4.69%, it pays an annual dividend of $1.81, which translates to a yield of 5.35% on the prevailing price level.
IP reported net sales of $4.68 billion in the fiscal second quarter that ended June 30, 2023. The company’s adjusted operating earnings reached $204 million and $0.59 per share. Its net earnings stood at $235 million. Moreover, its free cash flow rose 27.9% year-over-year to $261 million.
IP’s EPS and revenue are expected to amount to $0.59 and $4.82 billion in the fiscal third quarter ending September 2023. It has a commendable earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters.
Over the past three months, the stock has gained 10.1% to close the last trading session at $34.50.
IP’s solid prospects are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
In addition, it has a B grade for Value and Quality. It is ranked #7 in the same industry.
To see the IP’s additional Growth, Momentum, Stability, and Sentiment ratings, click here.
Stock #2: Sappi Limited (SPPJY)
Headquartered in Johannesburg, South Africa, SPPJY specializes in producing materials from renewable wood fiber resources. Its product range includes dissolving pulp, graphic papers, various types of packaging, and specialty papers such as flexible packaging papers, label papers, containerboards, and more.
SPPJY’s trailing-12-month asset turnover ratio of 1.06x is 46.6% higher than the industry average of 0.72x. The stock’s trailing-12-month ROCE and ROTA of 13.35% and 5.70% compare to the industry averages of 8.67% and 4.03%, respectively.
On June 20, SPPJY announced that it was committed to offering environmentally friendly papers, packaging, and textiles. The company prioritizes innovation, creating products like biodegradable kitchen tools and high-quality brochures. Its goal is to expand its customer base and contribute to a more sustainable future.
The company pays an annual dividend of $0.16, which translates to a yield of 7.36% on the current market price. Its four-year average dividend yield is 1.56%.
During the fiscal third quarter that ended June 30, 2023, SPPJY reported sales of $1.33 billion. Its operating profit and EBITDA, excluding special items, amounted to $45 million and $106 million. Moreover, the company’s profit for the period and EPS stood at $40 million and seven cents.
Analysts expect SPPJY’s revenue for the fiscal fourth quarter ending September 2023 to amount to $1.35 billion.
Shares of SPPJY gained marginally intraday to close the last trading session at $2.13.
SPPJY’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our POWR Ratings system.
It has an A grade for Value and a B for Stability. SPPJY is ranked #6 in the same industry.
In addition to the POWR Ratings highlighted above, one can access SPPJY’s additional ratings for Growth, Sentiment, Momentum, and Quality here.
Stock #1: Klabin S.A. (KLBAY)
Headquartered in São Paulo, Brazil, KLBAY operates in the paper and pulp industry internationally. The company engages in the planting and forestry operations of pine and eucalyptus; and forestry management business.
KLBAY’s trailing-12-month net income margin of 23.01% is 248.7% higher than the industry average of 6.60%. The stock’s trailing-12-month ROCE and ROTA of 45.86% and 9.20% compare to the industry averages of 8.67% and 4.03%, respectively.
The company pays $0.42 annually as dividends, translating to a yield of 4.27% on the current price level, higher than its four-year average dividend yield of 3.91%. Moreover, KLBAY has raised its dividend payout at a CAGR of 22.7% over the past three years.
In the fiscal second quarter that ended June 30, 2023, KLBAY’s net revenue amounted to R$4.29 billion ($868.05 million). Its adjusted EBITDA came in at R$1.34 billion ($271.14 million). Also, its net income stood at R$971 million ($196.47 million).
Street expects KLBAY’s revenue and EPS for the fiscal third quarter ending September 2023 to stand at $0.14 and $969.36 million.
The stock gained 22.1% year-to-date to close the last trading session at $9.10.
KLBAY’s strong fundamentals are reflected in POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Stability and a B for Quality. Within the same industry, it is ranked #5.
Beyond the POWR Ratings stated above, we have also given KLBAY grades for Growth, Value, Momentum, and Sentiment. Get all KLBAY ratings here.
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KLBAY shares were trading at $9.10 per share on Wednesday morning, down $0.05 (-0.49%). Year-to-date, KLBAY has gained 25.39%, versus a 17.85% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More...
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