Amcor plc (AMCR): The Best ASX Dividend Stock Heading Into 2025?

Investment Thesis
Amcor plc (AMCR) is a leading global packaging company that has consistently delivered strong financial performance and dividend growth. As we approach 2025, investors may be wondering if AMCR is the best ASX dividend stock to consider for their portfolios. In this article, we will analyze Amcor's dividend yield, payout ratio, earnings growth trajectory, and key drivers of revenue and earnings growth to determine if it is indeed the best dividend stock heading into 2025.

AMCR Stock YTD Performance
AMCR stock has had a solid year so far, with a YTD return of 15.1%. While this return is lower than the S&P/ASX 200 Index's 17.3% YTD gain, it is still a respectable performance. Amcor's YTD return is also higher than that of its key competitor, Orora Limited (ORA), which has a YTD return of 11.4%. This performance suggests that AMCR has been a solid choice for dividend investors in 2024.

Amcor's Dividend Yield and Payout Ratio
Amcor's dividend yield is 6.14% (TTM), which is higher than the average of the bottom 25% of dividend payers in the US market (0.93%). However, it is lower than the average of the top 25% of dividend payers in the Consumer Cyclical sector in the US market (7.36%). This means that while Amcor's dividend yield is attractive compared to many other dividend stocks, there may be more attractive dividend stocks to consider within its sector.

Amcor's earnings growth trajectory is stable, with a 1-year growth rate of 4.00% and a 3-year growth rate of 2.70%. Over the past 5 years, the company has maintained an average Dividends Per Share Growth Rate of 2.48%. This stable earnings growth trajectory suggests that Amcor has the financial capacity to maintain and increase dividends in the coming years.

Key Drivers of Amcor's Revenue and Earnings Growth
Amcor's revenue and earnings growth are driven by several key factors that impact the company's ability to maintain or increase its dividend payments. Here are the main drivers and their impacts:

1. Innovative Packaging Solutions: Amcor's focus on developing innovative and sustainable packaging solutions is a significant driver of its revenue and earnings growth. By offering cutting-edge packaging that enhances product appeal, functionality, and safety while minimizing environmental impact, Amcor attracts and retains customers, leading to increased sales and earnings.
2. Diversified Customer Base: Amcor serves a wide range of industries, including food and beverage, medical and pharmaceutical, fresh produce, snack food, personal care, and others. This diversification helps Amcor mitigate risks associated with relying on a single industry or customer. A broad customer base allows Amcor to maintain steady revenue growth even if one segment faces challenges.
3. Global Presence: With operations in Europe, North America, Latin America, and the Asia Pacific, Amcor benefits from exposure to various markets and economies. This global presence enables Amcor to capitalize on growth opportunities in different regions and mitigate risks associated with relying on a single market.
4. Synergies from Mergers and Acquisitions (M&A): Amcor's strategic acquisitions, such as the recent acquisition of Berry Global, are expected to generate synergies that contribute to revenue and earnings growth. These synergies can help Amcor maintain or increase its dividend payments.
5. Strong Financial Performance: Amcor's solid financial performance, as evidenced by its operating cash flow of $1.19 billion, free cash flow of $512 million, and EBITDA of $1.90 billion, demonstrates the company's ability to generate cash and maintain or increase dividend payments.

Amcor's Dividend Yield Compared to Other ASX-listed Dividend Stocks
Amcor's dividend yield of 6.14% is higher than the average of the bottom 25% of dividend payers in the US market but lower than the average of the top 25% of dividend payers in the Consumer Cyclical sector in the US market. This means that while Amcor's dividend yield is attractive compared to many other dividend stocks, there may be more attractive dividend stocks to consider within its sector.

For potential investors, this information suggests that Amcor offers a solid dividend yield, but they should also explore other dividend stocks in the Consumer Cyclical sector to find potentially higher yields. Additionally, investors should consider the company's overall financial health, growth prospects, and dividend sustainability when making investment decisions.

Amcor's Valuation Heading Into 2025
Given AMCR stock's impressive surge this year, we are not surprised that it seems overvalued now. It's currently trading at an LTM adjusted P/E of 17.849058, which is noticeably higher than the Consumer Cyclical sector median LTM P/E of 17.36. Moreover, we also noticed that its EV/Fwd EBITDA of 11.885766 is also discernibly ahead of its 3Y pre-COVID EBITDA multiple mean. Its mean EBITDA multiple is just 10.8. Therefore, we assign AMCR stock with a Neutral rating heading into 2025. However, if you are not bothered with its capital appreciation or total return potential, AMCR stock's robust dividend yield is still attractive. Hence, we think the current price level still offers a possible opportunity to add AMCR stock for these investors.

In conclusion, Amcor plc (AMCR) is a solid dividend stock with a stable earnings growth trajectory and a relatively attractive dividend yield. However, investors should consider other dividend stocks in the Consumer Cyclical sector to find potentially higher yields and monitor Amcor's financial health and growth prospects to ensure the sustainability of its dividend payouts.