Good results continue to roll in. Never mind the Omicron variant, inflationary concerns or even a slow recovery. I think this bodes well for the FTSE 100 index, which has regained its mojo over the last couple of sessions after dipping in the immediate weeks preceding them. I would go so far as to say that some companies might even support it over the long term, like the packaging provider DS Smith (LSE: SMDS).
DS Smith reports robust results
The company reported continued strong results for the half-year ending 31 October. Its revenue increased by 22% from the corresponding six months of 2020 on a constant currency basis, which is robust enough. But the real highlight of its earnings report is the massive 88% rise in its post-tax profits.
Dividend increase for the FTSE 100 stock
With this big increase in earnings, the company has also upped its dividends. Its interim dividend is up 4.8p , an increase of 20%. As a result, its dividend yield is now at 3.4%, which is just a bit below the FTSE 100 average of 3.5%. I have said earlier that at this point, I am most interested in stocks that have a minimum dividend yield of 4%. This is because UK inflation is forecast to be 4% in 2022. So, I want my real returns to be at least that much, and I certainly do not wish to lose money.
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However, in this case, I am willing to make an exception. The company has grown its dividends quite a bit over time. So, chances are that if I am ready to hold the stock for the long term, the dividend yield on my investments in the stock would eventually look much higher than they do if I were to buy the stock today. My estimates suggest that if I had invested in the stock some 10 years ago, my dividend yield would be 6.3%.
Long-term structural drivers
In my view, this is indeed a stock for me to buy for the long term. The reason is simple. There has been a structural shift in its favour. It services the thriving e-commerce sector, which has received an unexpected boost during the past year. And it is quite likely that this uptrend will continue. For the relatively short term, this assessment is backed by the company’s forecasts as well. It expects “significant improvement in profitability during the second half of this year”.
Risks to the stock
I do think, however, that there could be some risks to the forecast going by the rise in inflation that has been happening. So far, DS Smith has been able to mitigate the cost challenge by passing on higher prices to end customers, hedging energy costs and entering into long-term agreements with suppliers. And this may well serve the company going forward as well. But still, I think as a potential investor in the stock I want to keep a watch on this particular aspect.
However, I do believe that this is a good stock for me to buy for the long term. It is on my list of stocks to invest in during 2022, if not before that.
