One of the most important lessons to learn in life is that life isn’t fair.
The earlier we can learn this lesson, the better.
And the earlier we learn it, the faster we can adapt to this paradigm and approach life in a way that maximizes our chances for success.
Nobody is coming to save us.
We must save ourselves.
This is why I decided to chase after financial independence in my 20s.
I got a bit of a late start, but I was still able to achieve my goal of financial independence in only a few years by aggressively saving and investing.
But I didn’t invest blindly.
I used the dividend growth investing strategy to my advantage.
This strategy is all about buying and holding shares in world-class businesses that pay safe, growing dividends out to shareholders.
You can find hundreds of examples of these businesses over at the Dividend Champions, Contenders, and Challengers list – a rich source of data on US-listed stocks that have raised dividends each year for at least the last five consecutive years.
This strategy is so well suited to achieving and maintaining financial independence due to the passivity and reliability of growing dividend income from great businesses.
In my experience, dividend income is even more reliable than job income; a worker can be fired at any time, but a shareholder cannot.
Once you have enough growing dividend income to pay the bills and stay ahead of inflation, you’re free!
As I said, I hit my goal early in life.
In fact, I was even able to quit my job and retire in my early 30s.
My Early Retirement Blueprint discusses how that played out.
Suffice it to say, much of my success came down to living below my means and converting my savings into stocks fitting the dividend growth investing strategy.
By following that methodology, I built the FIRE Fund.
That’s my real-money portfolio, and it generates enough five-figure passive dividend income for me to live off of.
Now, as much as investing in great businesses can lead to huge amount of financial success in life, investing at great valuations is also a critical component of the equation.
That’s because price only tells you what you pay, but value tells you what you get.
An undervalued dividend growth stock should provide a higher yield, greater long-term total return potential, and reduced risk.
This is relative to what the same stock might otherwise provide if it were fairly valued or overvalued.
Price and yield are inversely correlated. All else equal, a lower price will result in a higher yield.
That higher yield correlates to greater long-term total return potential.
This is because total return is simply the total income earned from an investment – capital gain plus investment income – over a period of time.
Prospective investment income is boosted by the higher yield.
But capital gain is also given a possible boost via the “upside” between a lower price paid and higher estimated intrinsic value.
And that’s on top of whatever capital gain would ordinarily come about as a quality company naturally becomes worth more over time.
These dynamics should reduce risk.
Undervaluation introduces a margin of safety.
This is a “buffer” that protects the investor against unforeseen issues that could detrimentally lessen a company’s fair value.
It’s protection against the possible downside.
Life isn’t fair, which is precisely why we need to tilt the odds in our favor by seeking and then achieving financial independence via living below our means and using our savings to buy undervalued high-quality dividend growth stocks.
Of course, knowing what’s undervalued requires a basic understanding of how valuation works in the first place.
Well, that’s where Lesson 11: Valuation comes in.
Written by fellow contributor Dave Van Knapp, it expressly lays out how valuation works and how to apply a simple-to-follow valuation template in order to estimate the fair value of almost any dividend growth stock out there.
With all of this in mind, let’s take a look at a high-quality dividend growth stock that appears to be undervalued right now…
Amcor PLC (AMCR)
Amcor PLC (AMCR) is a Switzerland-based, UK-domiciled global packaging company.
Founded in 1896, Amcor is now a $19 billion (by market cap) packaging leader that employs 77,000 people.
Amcor’s operations span across hundreds of sites, with sales in 40 countries.
The company reports results across two segments: Global Flexible Packaging Solutions, 72% of FY 2025 revenue; Global Rigid Packaging Solutions, 28%.
Its main business segment is dedicated to flexible packaging products, namely soft disposable plastic for a variety of food, drink, healthcare, and hygiene products.
Packaging is all around us.
This is life in a modern-day society.
We are not hunter-gatherers who consume fresh at a harvesting site.
In this global, consumer-based society, products are manufactured, packaged, and then shipped to far-flung locations where they are then consumed down the line.
No matter what you use on a daily basis, it’s almost certainly packaged.
And much of that packaging comes in the form of soft plastics that are flexible in terms of fit and usage.
Think the small container that holds your favorite toothpaste, or what you squeeze your ketchup out of.
This is what Amcor specializes in, providing its specialized packaging to leading companies all around the world in various industries.
In doing so, it’s able to rack up plenty of growing revenue and profit, which has allowed the firm to reward shareholders with a large, growing dividend.
Dividend Growth, Growth Rate, Payout Ratio and Yield
Amcor has increased its dividend for seven consecutive years.
But this is only true under the current iteration of Amcor.
After acquiring Bemis Co. in 2019, which had a longstanding track record of its own dividend growth, the combined Amcor became a Dividend Aristocrat.
That means the dividend legacy here is richer than it first appears to be.
And while the three-year dividend growth rate of 2.1% isn’t much to look at, which is somewhat due to so many moving parts of late, this is very much offset by the stock’s market-smashing yield of 6.2%.
One doesn’t need a lot of growth when the yield is this high.
To put that yield in perspective, it’s more than five times higher than what the broader market offers.
It’s also 160 basis points higher than its own five-year average, giving us an early indication of how much value might be present.
This stock has often offered a fairly high yield, but it’s especially high right now.
Based on midpoint guidance for this year’s adjusted EPS, the payout ratio is 63.4% – reasonable, if a bit elevated.
For income-seeking investors, getting a 6%+ yield from a Dividend Aristocrat is a mouth-watering proposition.
Revenue and Earnings Growth
As much as that may be so, though, the proposition is based mostly on prior information.
However, investors must always be thinking about possible information coming in the future, as today’s capital is ultimately risked for tomorrow’s rewards.
As such, I’ll now build out a forward-looking growth trajectory for the business, which will come in handy when the time comes to estimate fair value.
I’ll first show you what the business has done over the last decade in terms of its top-line and bottom-line growth.
I’ll then reveal a professional prognostication for near-term profit growth.
Blending the proven past with a future forecast in this way should give us what we need to confidently judge where the business might be going from here.
Amcor moved its revenue from $4 billion in FY 2017 to $15 billion in FY 2025.
That’s a compound annual growth rate of 15.8%.
As amazing (and surprising) as this is, it’s very misleading.
First, Amcor’s noted acquisition of Bemis boosted revenue in a big way starting around late 2019.
Amcor then announced in 2024 its largest transaction ever in with its $8.4 billion all-stock merger with packaging peer Berry Global Group, Inc. – a transaction that closed in April 2025.
If we look at revenue growth in the in-between periods, it occurs to me that Amcor was growing its top line at something along the lines of a low-single-digit rate.
Meanwhile, earnings per share grew from $0.20 to $0.32 over this period, which is a CAGR of 5.4%.
Both the starting and ending points are abnormal for Amcor, with FY 2025 being heavily impacted by acquisition costs.
Eliminating abnormal years seems to show bottom-line growth in line with that low-single-digit rate.
Looking forward, CFRA believes that Amcor will deliver a 10% CAGR for its EPS over the next three years.
Due to so many moving parts, it’s very difficult to make a call on this one.
If CFRA is anywhere near correct on that call, it would represent a material acceleration in organic growth out of Amcor.
The Berry Global transaction is transformative, and the success (or lack thereof) of the merger will have a lot to say about Amcor’s results from here on out.
Bringing a former peer into the fold removes competition from the market while simultaneously giving the combined enterprise an opportunity to cut unnecessary and overlapping expenses.
That leaves us with a higher-growth, higher-margin business staring down synergies.
These synergies are powering Amcor’s powerful guidance for FY 2026, with the company targeting 12% to 17% constant currency growth on adjusted EPS.
Notably, Amcor is guiding for $1.8 to $1.9 billion in FCF this coming year, which easily covers the large dividend (even after accounting for the large increase in shares outstanding).
I think the additional scale and opportunities for synergies from the move on Berry Global does give Amcor shareholders something to be excited about for the first time in a while (as organic growth had previously likely been in a low-single-digit range, mirroring recent dividend growth).
Still, I’d moderate my expectations for what is ultimately still a low-margin, mature business in a low-margin, mature industry.
Maybe we see a boost from low-single-digit to mid-single-digit growth in the end, which is enough to move the needle.
Like I said earlier, when one is starting off with a 6%+ starting yield, not much growth is needed in order to make sense of an investment and get one to a nice total return.
Financial Position
Moving over to the balance sheet, Amcor has a weak financial position.
The long-term debt/equity ratio is 1.2, while the interest coverage ratio is approximately 2.
That latter ratio is particularly concerning.
Its credit ratings are in investment-grade territory (albeit at the lower end): Baa2, Moody’s; BBB, S&P.
The improvement in fortunes following the synergies from the Berry Global merger should give management a chance to clean the balance sheet up, but this strikes me as an unappealing portion of the capital structure.
Profitability is decent.
Return on equity has averaged 17.7% over the last five years, while net margin has averaged 5.7%.
ROE is juiced by the balance sheet; ROIC is typically between 5% and 10%, which is not impressive.
Also, the margins are fairly thin.
Overall, Amcor appears to be a pretty good business operating in a stable and mature industry with defensive end markets.
And with economies of scale, global distribution, and established relationships with some of the world’s largest companies, the company does benefit from durable competitive advantages.
Of course, there are risks to consider.
Litigation, regulation, and competition are omnipresent risks in every industry.
The company’s stretched balance sheet is, in my view, a key risk, and Amcor has to carefully guard against losing its investment-grade credit ratings.
A global footprint exposes the company to geopolitics and currency exchange rates.
Input costs (such as raw materials) can be volatile, and recent inflation has undoubtedly pressured margins.
The Berry Global transaction introduces serious near-term execution risk.
Despite the stable, defensive nature of the business model, the risk profile here is worth deliberating.
However, the valuation has already seemingly priced in a lot of deliberation…
Valuation
The forward P/E ratio, based on midpoint guidance for this year’s adjusted EPS, is sitting at a lowly 10.2.
That’s less than half that of the broader market’s earnings multiple .
The P/CF ratio of 9, which is below its own five-year average of 10.3 further shows what kind of cheapness is present.
While this is far from the best business I’ve seen, not much is being expected out of Amcor here.
These are extremely undemanding multiples.
And the yield, as noted earlier, is significantly higher than its own recent historical average.
So the stock looks cheap when looking at basic valuation metrics. But how cheap might it be? What would a rational estimate of intrinsic value look like?
I valued shares using a dividend discount model analysis.
I factored in a 10% discount rate and a long-term dividend growth rate of 3%.
I’m erring on the side of caution here, keeping the extended balance sheet and execution risk at top of mind.
If Amcor is able to generate bottom-line growth anywhere near CFRA’s expectation, which has its roots in Amcor’s own guidance, 3% dividend growth will be extremely easy to meet and exceed.
However, to date, dividend growth has been stuck in a low-single-digit range, and I think it makes sense to anchor the model to what’s been proven out already.
I think there’s room for upside surprise here, but Amcor’s status as a mature, low-margin business operating with a lot of leverage leans me toward taking a cautious stance.
The DDM analysis gives me a fair value of $7.65.
The reason I use a dividend discount model analysis is because a business is ultimately equal to the sum of all the future cash flow it can provide.
The DDM analysis is a tailored version of the discounted cash flow model analysis, as it simply substitutes dividends and dividend growth for cash flow and growth.
It then discounts those future dividends back to the present day, to account for the time value of money since a dollar tomorrow is not worth the same amount as a dollar today.
I find it to be a fairly accurate way to value dividend growth stocks.
I’m being very cautious with the valuation, which is why, even with undemanding multiples, the stock doesn’t look super cheap to me.
But we’ll now compare that valuation with where two professional stock analysis firms have come out at.
This adds balance, depth, and perspective to our conclusion.
Morningstar, a leading and well-respected stock analysis firm, rates stocks on a 5-star system.
1 star would mean a stock is substantially overvalued; 5 stars would mean a stock is substantially undervalued. 3 stars would indicate roughly fair value.
Morningstar rates AMCR as a 4-star stock, with a fair value estimate of $11.50.
CFRA is another professional analysis firm, and I like to compare my valuation opinion to theirs to see if I’m out of line.
They similarly rate stocks on a 1-5 star scale, with 1 star meaning a stock is a strong sell and 5 stars meaning a stock is a strong buy. 3 stars is a hold.
CFRA rates AMCR as a 4-star “BUY”, with a 12-month target price of $10.00.
I came out very low this time around. Averaging the three numbers out gives us a final valuation of $9.72, which would indicate the stock is possibly 14% undervalued.
Bottom line: Amcor PLC (AMCR) is a global business operating in a stable industry with defensive end markets. Its packaging is produced for and sold to some of the world’s leading companies who are in turn making and selling products people all over the world consume on an everyday basis.
Its transformational merger introduces near-term execution risks, but growth is expected to pick up meaningfully. With a market-smashing yield, inflation-beating dividend growth, a reasonable payout ratio, nearly 10 consecutive years of dividend increases, and the potential that shares are 14% undervalued, this is an interesting idea for dividend growth investors who are hunting for income.
-Jason Fieber
Note from D&I: How safe is AMCR‘s dividend? We ran the stock through Simply Safe Dividends, and as we go to press, its Dividend Safety Score is 50. Dividend Safety Scores range from 0 to 100. A score of 50 is average, 75 or higher is excellent, and 25 or lower is weak. With this in mind, AMCR‘s dividend appears Borderline Safe with a moderate risk of being cut. Learn more about Dividend Safety Scores here.
P.S. If you’d like access to my entire six-figure dividend growth stock portfolio, as well as stock trades I make with my own money, I’ve made all of that available exclusively through Patreon.
Disclosure: I have no position in AMCR.
