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Across the FTSE 100, there’s a wide range of income stocks with substantial dividend yields. Among these is Mondi (LSE:MNDI) – a global supplier of sustainable packaging and paper products.
Selling cardboard and other packaging materials is hardly the most exciting business model out there. But often it’s the boring businesses that make for terrific long-term income investments. And right now, this industry titan is offering a pretty big payout.
So, should investors rush to buy this lucrative-looking opportunity? Or is this a hidden high-yield trap?
Investigating the yield
The yield offered by a stock can be increased in one of two ways. Either the company hikes the amount of money paid out to shareholders, or the stock price falls. In the case of Mondi, it seems the latter is responsible for today’s substantial payout.
Throughout 2025, the shares of this packaging enterprise have taken quite a beating, falling by close to 30% since January. And this drop is only the latest chapter in a downward trajectory that started all the way back in 2022.
What happened?
There are a lot of factors at play. But it essentially boils down to cyclical softness, resulting in the thing that investors hate the most – profit warnings. Lacklustre demand combined with excess supply has dragged down both volumes and pricing in a double whammy for this business.
Institutional analysts subsequently cut their share price targets. And with investors concerned about prolonged headwinds due to structural shifts within the European manufacturing sector, it’s not surprising that sentiment surrounding Mondi and the sector as a whole has weakened significantly.
A buying opportunity?
Beyond implementing cost controls and efficiency improvements to boost cash generation, leadership is actively ramping up e-commerce-focused product volumes.
This pivot in strategy adds a bit more diversification to the group’s revenue stream. And it helps reduce its reliance on the manufacturing industry that’s increasingly moving towards just-in-time inventory models that require less packaging material.
Obviously, this switch can’t be flicked overnight. But Mondi does have the advantage of a cash-rich balance sheet to provide some financial flexibility to maintain shareholder payouts as well as cover its debt servicing costs.
However, these resources are ultimately finite. And should global economic weakness hamper demand from the e-commerce sector as well, the company may be forced to cut dividend payouts to meet its financial obligations.
Put simply, while Mondi shares offer a higher dividend yield, it’s a reflection of the high risk attached to its operations. Should demand for packaging materials suddenly pick up, buying shares today could prove to be a highly lucrative passive income decision. But if the soft demand environment continues longer than expected, buying shares could backfire spectacularly.
The bottom line
With a forward price-to-earnings ratio of 8.9, Mondi shares have definitely fallen into value stock territory. And it signals that investors are setting their expectations pretty low, opening the door to a potentially explosive comeback should the cycle turn and the business deliver superior financials.
But the question of when market conditions will improve remains unanswered. So, while I think this business is worth investigating further, I’m keeping it on my watchlist until some early signs of recovery begin to emerge. In the meantime, I’m more interested in other lucrative dividend opportunities.
