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Stock of the week: DS Smith

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Ian Forrest, investment research analyst at The Share Centre, picks corrugated and plastic packaging group DS Smith as stock of the week.

Founded in 1940 in the East End of London, DS Smith is now a leading provider of corrugated and plastic packaging in 25 countries. As well as this, the company operates a recycling business that collects used paper and corrugated cardboard from which it makes the recycled paper used in corrugated packaging.

The group has experienced excellent sales and earnings growth in recent years, especially due to the strong trend towards online retailing where cardboard packaging is widely used to transport products. Interested investors will therefore want to note that it recently confirmed trading has remained in line with expectations with good volume growth. Indeed, DS Smith’s strategy of adapting to provide customers with a growing range of services has helped drive growth and retain customers.

The latest update also pointed to the fact that the recently acquired businesses have made solid progress and the group therefore expects to deliver on all five of its medium term financial targets. Investors should acknowledge that DS Smith has a good track record of boosting growth with well-judged acquisitions.

Strong earnings are now feeding through into dividend payments, which have increased substantially in recent years, and the prospective yield now stands at 3.6%. Combine this with good sales growth, a solid record with acquisitions and a cost-cutting plan, we continue to recommend DS Smith as a ‘buy’. The shares are suitable for investors seeking a mixture of income and growth but also willing to accept a higher level of risk.

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