The Amcor (ASX: AMC) share price just dropped to a 52-week low, and I believe it could be a good opportunity to look at the S&P/ASX 200 Index (ASX: XJO) share for dividend income.
For readers that don't know about this business, it describes itself as a "global leader in developing and producing responsible packaging solutions for food, beverage, pharmaceutical, medical, home and personal care, and other products." It has a range of flexible and rigid packaging, specialty cartons, closures and services.
If you walk around, for example, a supermarket, there will be plenty of products in some sort of plastic packaging that the business has provided to its clients.
The company says that it's focused on making packaging that is "increasingly lighter weight, recyclable and reusable, and made using an increasing amount of recycled content across a variety of materials."
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What's going wrong for Amcor shares?
The business recently reported its FY23 result for the 12 months to 30 June 2023. This showed various financial numbers, including the adjusted non-generally accepted accounting principles (non-GAAP) figures which are seen as the true underlying performance of the company.
In FY23, net sales grew by 1% to US$24.7 billion, non-GAAP earnings before interest, tax, depreciation and amortisation (EBITDA) fell 5%, non-GAAP net income (net profit) fell 11% and free cash flow declined 20% to US$848 million.
In constant currency terms, the non-GAAP EBITDA rose 1% and the net income dropped 4%.
In summary, the company is facing difficult trading conditions. Not only is it hurting from higher raw material costs and general inflation, but there's soft consumer demand, customer destocking, volatile order patterns and unfavourable trends for the mix of its products.
Why it could be time to look at Amcor for dividend income
When the Amcor share price falls, it boosts the prospective dividend yield. For example, if a business has a 4% dividend yield and then it falls 10%, the dividend yield becomes 4.4%.
Since the start of 2023, Amcor shares have dropped by close to 20%. That has had a positive impact on the Amcor dividend yield.
The projection on Commsec currently suggests decent dividend growth in FY24 and that it could pay an annual dividend per share of 76.3 cents, which would equate to a dividend yield of 5.4%.
But there's more to a business than just the dividend.
The guidance for FY24 is that free cash flow, which may be the most important profitability measure, could grow to a range of between $850 million to $950 million. That'd be growth of between 0.2% to 11.8%.
Amcor is investing in more sustainable packaging, expanding its business over the long term, and working on costs and productivity initiatives.
I'm not expecting huge profit growth or capital growth from Amcor shares, but I believe that long-term sales and earnings per share (EPS) growth is very possible, which can help fund higher dividends. I don't think that weak trading conditions will last forever, so I think this is an opportunity for investors interested in the business.
