Is International Paper’s 20% Stock Price Drop a Concern or a Buying Opportunity? (IP)

After its share price rose more than 90% from early 2016 until its all-time high was reached in January 2018, International Paper (NYSE:IP) saw its share price retreat 30% from that peak and fall by more than 20% over the trailing 12 months. This might be an opportunity to lock in a discount if the share price returns to its recent uptrend soon.

Rising dividend income distributions can offset some of the share price decline for existing shareholders. However, new investors might be able to enjoy the dual benefits of a resurging share price as well as a growing dividend payout. International Paper has been paying dividends since 1946. Leading up to the 2008 financial crisis, the company paid a steady $0.25 quarterly dividend for more than a decade. In the aftermath of the crisis, International Paper cut its quarterly dividend by 90% for the distribution in the second quarter of 2009.

The company started raising its dividend payout distributions after four periods of $0.025 quarterly distributions. The company’s dividend payout then recovered within five quarters after the company resumed its dividend hikes. International Paper then paid a $0.265 dividend in the second quarter of 2011. Over the eight subsequent years, the company has boosted its annual dividend every year. The current annual dividend payout amount is more than 500% above the $0.375 payout in 2009.

While the current share price is just slightly below its 10-year trend — graph below — investors who are more risk averse might decide to put the International Paper stock on their watch list and wait for clearer signals that the share price is on its way to recovery.

However, the current share price has nearly 18% of room on the upside before it reaches the analysts’ average target price of $53.08. Additionally, more than half of the analysts currently covering the stock — 10 out of 18 — have a “Strong Buy (5) or “Buy” (5) recommendation. One analyst had and “Underperform” recommendation and the balance of seven analysts recommend a “Hold”.

The 50-day moving average has been below its 200-day counterpart during the entire trailing 12-month period. However, the share price gains in 2019 have pushed the 50-day average from 12.6% below the 200-day moving average at the beginning of January to just 1.56% below the 200-day average. If this trend continues, the 50-day moving average could break above the 200-day average in a bullish manner by the end of May.

Financial Results

After beating analysts’ earnings expectations in all four quarters of 2018, International Paper also delivered a positive earnings report for the first quarter of 2019 on April 25, 2019. Revenues only marginally advanced from $5.621 billion in the first period last year to $5.643 billion for the most recent period.

Furthermore, net earnings attributable to International Paper were $424 million, or $1.05 per diluted share. Additionally, adjusted earnings of $447 million corresponded to earnings per share (EPS) of $1.11 per diluted share. This EPS beat analysts’ expectations of $0.91 per share by nearly 22%.

International Paper Company (NYSE:IP)

Headquartered in Memphis, Tennessee, and founded in 1898, the International Paper Company is one of the world’s leading producers of fiber-based packaging, pulp and paper. The company has approximately 52,000 employees operating in more than 24 countries throughout North America, Europe, Latin America, North Africa, India and Russia. North American operations still provides the vast majority of the company’s sales. Based on 2018 year-end numbers, the North American region’s revenues ($17.6 billion) accounted for more than 75% of International Paper’s total global revenue of $23.3 billion. International Paper operates through three business segments. The Industrial Packaging segment manufactures containerboards, including linerboard, medium, white top and recycled medium cardboard stock. The Printing Papers segment produces printing and writing papers, such as uncoated papers for end use applications, including for brochures, greeting cards, books and direct mail, as well as envelopes, business forms and file folders. This segment sells uncoated papers under several brand names, including Hammermill, Postmark, Accent and Great White. The Global Cellulose Fibers segment provides fluff, market and specialty pulps that are used in absorbent hygiene products, tissue and paper products and non-absorbent end applications.

Dividend

The current $0.50 quarterly dividend payout is 5.3% higher than the $0.475 amount from the same period last year. This new quarterly dividend amount corresponds to a $2.00 annualized distribution and yields 4.6%, which is 28% higher than the company’s own 3.6% average yield over the past five years. Additionally, the company’s current yield is more than double the 1.93% average yield of the entire Consumer Goods sector and 72% above the 2.58% simple average yield of the Paper & Paper Products industry segment. It is also in line with the 4.46% average yield of the segment’s only dividend-paying companies. The company has enhanced its total annual dividend payout amount more than six-fold over the past nine consecutive years. This advancement translates to an average annual growth rate of nearly 20%.

Investors interested in collecting the next dividend distribution must claim stock ownership before the next ex-dividend date on May 24, 2019. International Paper will distribute the next round of payments on the June 14, 2019 pay date.

Share Price

Riding the downtrend that began in January 2018, IP’s share price passed through its 52-week high of $59.01 on June 11, 2018. Between this peak and its 52-week low of $37.56 on December 24, 2018, the share price dropped more than 36%. However, after bottoming out in late December 2018, the share price embarked on an uptrend and advanced to close on May 20, 2019 at $43.20. While still more than 26% short of the June peak and nearly 22% lower than it had been one year earlier, the May 20 closing price was 20% higher than its 52-week low on Christmas Eve 2018.

The rising dividend income distribution over the past year counteracted some of the asset depreciation and reduced the total loss to approximately 18% over the trailing 12-month period. However, even with a 22% share price decline in the past year, International Paper was able to deliver a total return of more than 23% over the past three years. Furthermore, its five-year return was more than 18%.

Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.