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FTSE 100 stock Mondi (LSE: MNDI) is now paying one of the highest dividend yields on the index. Based on the current share price, an investment of 10,000 shares in the packaging and paper company would have paid out around £6,110 in the last year. The dividend yield of 7.40% is the fifth highest on London’s leading index.
At only £3.2bn market cap, Mondi is one of the smallest Footsie firms. It’s also a company many might be unaware of. But it’s trading near a 52-week low and offering some of the highest dividends doing. Is this a bargain in the making? Is this lesser-known stock one that dividend investors should be buying while it’s cheap? Here’s my take.
Sustainable paper
Given Mondi is not one of the FTSE 100’s household names, here’s a little background. The company was founded in South Africa and is still listed on the Johannesburg Stock Exchange. It joined the London Stock Exchange as a dual listing in 2007.
The company’s products fall into two categories: paper and packaging. The paper includes office paper, printing paper, brochures, and books. The packaging includes plastics for consumer goods and corrugated boxes for transport. Last year, the firm brought in over €7bn revenue (it reports in euros).
The firm bills itself as ‘sustainable’ because of its vertical integration. Mondi owns thousands of hectares of forest in South Africa, which is part of the supply chain. The firm uses ‘sustainable working forests’ where the amount of wood harvested is less than what is grown naturally, supporting natural regeneration.
Pros and cons
As mentioned, Mondi is grappling with a few challenges at the moment. An oversupply of paper on the market has reduced prices. There’s been a general lack of demand across all products, too. The stock dropped 14% on the day of its most recent update, taking the share price to a 12-year low. That’s not to mention the impact of increasing tariffs, which could have an effect on deliveries and consequently earnings.
This has a knock-on effect on the dividend, which is expected to be reduced in the years ahead. While a 7.4% dividend yield looks nice, the forward yield of 6.16% is a drop that might put some off.
The whole package (pun intended) gets a lot of thumbs up from analysts, however. There are no Sells at present, and the average price target is 38.8%! It’s been a while since I saw a 12-month consensus that high.
Packaging companies are often cyclical, thriving along with a booming economy. When times are good, more packages are delivered. Therefore, this might be a great opportunity for anyone bullish on the world’s economic prospects. For this reason, I think Mondi stock worth thinking about it.
