Dividends are in short supply as many companies are facing a cash crunch due to the COVID-19 pandemic.
But there's one S&P/ASX 200 Index (Index:^AXJO) that's set to buck the trend with a big special dividend payout – and no, I am not talking about cashed-up iron ore miners like Fortescue Metals Group Limited (ASX: FMG).
This extra dividend payer is packaging group Orora Ltd (ASX: ORA) and Credit Suisse reckons this will be worth $750 million, or 62 cents a share.
Dividend bonanza
That's a significant amount as the special dividend alone gives the stock a yield of around 25% based on the latest traded price.
The cash comes from the sale of Orora's fibre business to Nippon Paper and the transaction is expected to be finalised by the end of this month.
The broker was initially forecasting a $1 billion off-market share buyback but now believes management will break this up into the partially franked special dividend plus another $250 million capital return and a $200 million on-market share buyback in FY21.
No immunity
It might be better to spread the love around given that no one can say with any confidence when the coronavirus bear market will end.
Packaging companies are somewhat defensive but Orora and its peer AMCOR PLC/IDR UNRESTR (ASX: AMC) have come under pressure too.
Both stocks are down around 14% since the market peaked, although this is still better than the 26.5% plunge by the ASX 200.
Forecast earnings changes
Credit Suisse lowered its earnings forecasts for Orora, which makes promotional displays in the US. That market is more badly hit by the COVID-19 pandemic than Australia and there won't be many customers ordering displays.
Credit Suisse assumes that this business swings to a $10 million earnings before interest and tax (EBIT) loss.
"We assume Orora's packaging distribution business – which has solid exposure to the food and pharmaceutical industries, but has high fixed costs – suffers a 20% drop in EBIT in FY21," said the broker.
"In FY09, during the GFC, the business suffered a 46% drop in EBIT but the customer mix is more defensive now."
Price target cut
On the other hand, the group's Australasian beverage packaging division should benefit from the panic buying of beer and soft drinks.
Credit Suisse reiterated its "outperform" recommendation on the stock. While it lowered its price target to $2.15 a share, there is still a circa 20% upside to the current share price of $2.53 once you factored in the expected capital returns.
