NextFin News - Packaging Corp of America (PKG) has emerged as an unlikely focal point for income-seeking investors, as the century-old industrial firm leverages the digital commerce boom to fuel aggressive dividend growth. On Wednesday, Michael Khouw, a veteran options trader and frequent contributor to CNBC’s "Options Action," highlighted the company as a prime candidate for a "buy-write" strategy designed to extract yield from a stock that many investors might otherwise overlook as a stagnant relic of the old economy.
The fundamental case for the company rests on a simple irony: while the modern economy is driven by digital clicks and mobile apps, the physical fulfillment of those orders remains tethered to corrugated boxes and containerboard. Packaging Corp of America has capitalized on this persistent demand, recently boosting its annual dividend by 20% to $6.00 per share. Market data shows the stock has climbed a modest 9% in 2026, trading near $225.50 as of Wednesday afternoon. Wall Street analysts currently project the company will earn $12.30 in adjusted earnings per share next year, representing approximately 18% year-over-year growth.
Khouw, who is known for his technical approach to derivatives and often advocates for strategies that mitigate volatility through premium collection, suggests that investors can "supercharge" this industrial holding. His proposed trade involves buying the stock at current levels and simultaneously selling the July $250 call option for a target premium of $2.25 per contract. This "buy-write" or covered call strategy effectively manufactures a "double dividend" by combining the newly increased $1.50 quarterly payout with the immediate cash yield from the option sale, which represents roughly 1% of the stock price over a six-week horizon.
This specific strategy reflects Khouw’s long-standing preference for income-generating structures in sideways or choppy markets. However, it is important to note that this perspective is primarily driven by a single analyst’s tactical framework and does not necessarily reflect a broader consensus among sell-side institutions, many of whom remain cautious about the industrial sector’s sensitivity to broader macroeconomic shifts. While the strategy offers a cushion against minor price declines, it also caps the investor's potential upside at $250 per share, meaning any significant rally in the stock would result in the shares being called away, leaving the investor with the premium but none of the further capital gains.
The success of such a trade hinges on the assumption that the macro environment will remain "choppy and sideways," as Khouw describes it. If the U.S. economy faces a sharper-than-expected downturn, the 18% earnings growth forecast could prove overly optimistic, potentially leading to a decline in the stock price that exceeds the protection provided by the $2.25 option premium. Conversely, if the industrial sector experiences a sudden re-rating, the capped upside of the covered call could lead to significant underperformance relative to a simple long position in the stock.
Explore more exclusive insights at nextfin.ai.
