Avery Dennison Delivers 56% Three-Year Total Return (NYSE:AVY)

While paperless commerce continues to expand, the Avery Dennison Corporation (NYSE:AVY) adjusted its mix of products and services to take advantage of the increased need for shipping and tagging products to deliver strong asset appreciation and a steady dividend income to shareholders.

In the early 1980s, Avery Dennison established a separate department to focus on offering  office products, such as binders, file labels and name badges. While this division expanded rapidly and captured a large market share, the development of personal computers and electronic data storage began diminishing market demand for traditional office paper products.

However, Avery Dennison recognized the market shift and transitioned its focus into offering systems, solutions and supplies for e-commerce fulfilment operation that have been expanding with the rise of online commerce. In 2013, Avery Dennison sold its entire Office and Consumer Products division to CCL Industries, Inc (TSX:CCL.B).

Dividends

Avery Dennison began distributing dividends in 1964. Over the past four decades, the company failed to boost its annual dividend only twice. The company cut its dividend in half in 2009 as a consequence of the economic downturn and the financial crisis in 2008. However, after paying a flat dividend in 2010, Avery Dennison resumed annual dividend hikes in 2011 and has boosted its annual dividend payout every year since then. The company fully restored its dividend in six years and the 2017 annual payout exceeded the 2008 annual distribution of $1.64 before the 2009 dividend cut.

Over the past nine years of consecutive annual dividend hikes, Avery Dennison enhanced its annual payout nearly three-fold. This advancement corresponds to an average growth rate of 12.6% per year since 2010. Prior to the 2009 dividend cut and adjusted for stock splits, the Avery Dennison company boosted its annual dividend payout every year since 1977.

The current $0.58 quarterly dividend is 11.5% higher than the $0.52 payout from the same period last year. This new quarterly payout corresponds to a $2.32 annualized distribution and a 2% forward dividend yield. Despite a strong asset appreciation, which suppresses the yield, this current yield is 1.6% higher than the company’s own 1.95% five-year yield average. Additionally, the current Avery Dennison yield is also in line with the 2.03% simple average yield of the overall Consumer Goods sector.

Share Price

While the steadily rising dividend income distributions certainly contributed to the shareholders’ total returns over the past few years, the main drivers behind the robust returns were capital gains. After losing 75% of its value in the aftermath of the 2008 financial crisis and bottoming out at just slightly above $17, the Avery Dennison reversed trend advanced seven-fold before reaching its all-time high above $121 in January 2018.

After reaching its all-time peak in early 2018, the share price reversed direction and mostly declined for the remainder of the year. The share entered the trailing 12-month period riding that downtrend. Under downward pressure from the overall market correction in the last quarter of 2018, the Avery Dennison stock declined another 20% before reaching its 52-week low of $83.79 on December 24, 2018.

However, as the overall market began to recover in late December 2018, the Avery Dennison stock reversed trend as well. Notwithstanding a brief pullback in late-April and May 2019, the share price rose nearly 45% from its December low before reaching its 52-week high of $120.48 on July 5, 2019.

After peaking in early July, the share price pulled back slightly to close at the end of trading on August 29, 2019, at $115.00. While 4.5% below the 52-week high from early July, the August 29, closing price was 9.3% higher than it was one year earlier, as well as 37% higher than the 52-week low from late-December 2018. However, the share price has more-than doubled for a gain total gain of 135% over the past five years.

The 9.3% capital gain combined with a 2% dividend income for an 11.5% total return over the last 12 months. Longer term returns were even more advantageous with a 56% combined gain over the past three years. Furthermore, the shareholders more than doubled their investment over the last five years with a total return of 157%.

Despite a recent pullback, several indicators suggest that the share price could deliver additional growth. The current share price is still significantly above the 200-day moving average and trading around the 50-day moving average level since the beginning of August. A break above the 50-day moving average that lasts for several trading sessions could indicate the beginning of another uptrend, at least over the near term. The current share price also has at least 6% of room on the upside before it reaches the analysts average target price of $121.50. Additionally, more than half of the analysts’ currently covering the stock — 5 out of 9 — have either a “Buy” (2) or a “Strong Buy” (3) recommendation.

Avery Dennison Corporation (NYSE:AVY)

Headquartered in Glendale, California, and founded in 1935 the Avery Dennison Corporation produces and sells pressure-sensitive materials worldwide. The company’s Label and Graphic Materials segment offers pressure-sensitive label and packaging materials, as well as graphics and reflective products under the Fasson, JAC, Avery Dennison and Mactac brands. This segment provides its products to the home and personal care, pharmaceutical, food and beverage market, commercial sign, digital printing and other related market segments.

The company’s Retail Branding and Information Solutions segment designs, manufactures and sells creative services, brand embellishments, graphic tickets, tags, labels and sustainable packaging solutions. Additionally, this segment offers item-level RFID, visibility and loss prevention, price ticketing, country of origin compliance, brand protection and security solutions. Furthermore, the company’s Industrial and Healthcare Materials segment offers tapes, fasteners, performance polymers, medical pressure-sensitive adhesive based materials and products. Formerly known as Avery International Corporation, the company changed its name to Avery Dennison Corporation in 1990.

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.