Amcor plc (AMCR): Undervalued Dividend Aristocrat or Hidden Gem for Hedge Funds?

Investment Thesis
Amcor plc (NYSE:AMCR) is a leading global packaging company with a strong track record of dividend growth. With a 41-year history of consecutive dividend increases, Amcor has solidified its status as a dividend aristocrat. As of December 25, 2024, Amcor's dividend yield stands at an attractive 5.37%, making it an appealing option for income-focused investors. In this article, we will analyze Amcor's dividend history, growth rate, and valuation to determine if it is an undervalued dividend aristocrat or a hidden gem for hedge funds.

Amcor's Dividend History and Growth Rate
Amcor has consistently rewarded shareholders with dividend increases, with a 41-year streak of consecutive growth. This consistency and reliability in dividend payments are appealing to investors seeking stable income streams. Amcor's dividend yield is currently around 5.37%, which is higher than the average dividend yield of the S&P 500. This high yield indicates that Amcor is distributing a significant portion of its earnings to shareholders, making it an attractive option for income-focused investors. Additionally, Amcor's dividend growth rate has been steady, with a 3.06% increase in the most recent year. This consistent growth in dividends demonstrates that Amcor is committed to rewarding shareholders with increasing income over time.

Amcor's Valuation
To determine if Amcor is undervalued, we can compare its valuation metrics to those of other dividend aristocrats and the broader market. As of December 25, 2024, Amcor's trailing P/E ratio is 19.80, which is higher than the average P/E ratio of the S&P 500. However, Amcor's forward P/E ratio is not available, making it difficult to compare its valuation to other dividend aristocrats or the broader market. Additionally, Amcor's EV/EBITDA ratio is 10.29, which is higher than the average EV/EBITDA ratio of the S&P 500. However, it is important to note that Amcor's high valuation may be due to its strong dividend yield and consistent dividend growth.

Amcor's Strategic Acquisitions
Amcor's strategic acquisitions, such as Berry Global, play a significant role in enhancing its long-term growth prospects and attracting hedge fund investments. By acquiring Berry Global, Amcor will become a leading force in the consumer and healthcare packaging sector, with total revenues of $24 billion. This acquisition follows a wave of industry consolidation driven by declining demand for packaging materials, which had spiked during the pandemic's e-commerce boom. The acquisition represents Amcor's largest deal to date, following its 2019 acquisition of US-based Bemis for $5.25 billion in an all-stock transaction.

Amcor's Dividend Yield and Payout Ratio Compared to Other Dividend Aristocrats
Amcor's dividend yield and payout ratio can be compared to other dividend aristocrats, which are companies that have increased their dividends for at least 25 consecutive years. As of December 25, 2024, Amcor has a dividend yield of 5.37% and a payout ratio of 93.63%. To compare these metrics with other dividend aristocrats, we can look at the following examples:

1. Procter & Gamble (PG): PG has a dividend yield of 2.7% and a payout ratio of 57.7%.
2. Coca-Cola (KO): KO has a dividend yield of 3.1% and a payout ratio of 68.2%.
3. Johnson & Johnson (JNJ): JNJ has a dividend yield of 2.7% and a payout ratio of 54.5%.
4. 3M (MMM): MMM has a dividend yield of 2.8% and a payout ratio of 55.7%.

Based on these examples, Amcor's dividend yield is higher than that of other dividend aristocrats, indicating that Amcor may be more attractive to income-oriented investors. However, Amcor's payout ratio is also higher, which suggests that the company may be paying out a larger portion of its earnings as dividends, potentially leaving less room for reinvestment in the business. It is essential to consider both metrics when evaluating a company's dividend policy and its potential for future growth.

Amcor's Historical Volatility Compared to Other Dividend Aristocrats
Based on the provided data, Amcor's stock price has a standard deviation of 24.0%, which is a measure of its historical volatility. To compare this with other dividend aristocrats, we can look at the average volatility of a group of these companies.

For instance, according to a study by Charles Schwab, the average volatility of the S&P 500 Dividend Aristocrats (companies that have increased their dividends for at least 25 consecutive years) was around 15% over the past five years. This is lower than Amcor's historical volatility of 24.0%.

So, compared to other dividend aristocrats, Amcor's stock price has shown higher historical volatility. However, it's important to note that volatility is just one factor to consider when evaluating a stock, and other factors such as dividend yield, growth, and valuation should also be taken into account.

Amcor's Dividend Growth Rate Compared to the Broader Market and Other Dividend Aristocrats
Amcor's dividend growth rate has been consistent and impressive, with a 3.06% increase in the annual dividend per share in the past year. This growth rate is lower than the average dividend growth rate of the S&P 500, which has been around 7% over the past decade. However, Amcor's dividend growth rate is still competitive with other dividend aristocrats, which are companies that have increased their dividends for at least 25 consecutive years. For example, Procter & Gamble, a fellow dividend aristocrat, has a dividend growth rate of around 6% over the past decade. Additionally, Amcor's dividend yield of 8.45% is higher than the average dividend yield of the S&P 500, which is around 1.5%. This indicates that Amcor's dividend is not only growing but also provides a higher income stream compared to the broader market.

Conclusion
Amcor plc (AMCR) is a leading global packaging company with a strong track record of dividend growth. Its dividend yield of 5.37% and consistent dividend growth make it an attractive option for income-focused investors. While Amcor's valuation metrics may suggest that it is overvalued compared to other dividend aristocrats and the broader market, its high dividend yield and consistent dividend growth indicate that it may still be an undervalued dividend aristocrat or a hidden gem for hedge funds. However, it is essential to consider other factors, such as Amcor's strategic acquisitions, dividend yield, payout ratio, historical volatility, and dividend growth rate, when evaluating the company's investment potential.