Fortune Brands’ Dividend Hike Enhances Shareholder Value

Zacks

In an attempt to enhance shareholder value, Fortune Brands Home & Security, Inc. (FBHS) recently hiked its quarterly cash dividend by 16.7% to 14 cents from 12 cents per share, thereby bringing the annual dividend to 56 cents. The news did not provide much impetus to the stock that rose marginally by 1.7% to close at $45.85.

The new dividend is payable on Mar 18 to shareholders of record as of Feb 27, 2015. The annualized dividend yield, based on the increased dividend and last closing stock price is 1.2%.

This Zacks Rank #3 (Hold) company, which competes with American Woodmark Corp. (AMWD), has consistently paid dividends for the past three quarters. The home and security products company had last hiked its quarterly dividend to 12 cents from 10 cents in Dec 2013, reflecting an upsurge of approximately 20%.

The company’s strategy of paying regular dividend and increasing the same at feasible intervals reflects its commitment to enhance long-term value for shareholders. Through this, Fortune Brands Home & Security also depicts its ability to boost earnings and cash flows in the long run. Further, it highlights the company’s capability to generate free cash flow and its well-defined future prospects.

At its last earnings announcement, management said that it expects to generate free cash flow of $200 million for full-year 2014. Management has also taken key strategic steps such as acquiring SentrySafe and selling Simonton windows in the third quarter of fiscal 2014, and separating the tool storage business from the company’s larger and growing security business in the fourth quarter. The company is optimistic about these decisions and expects to generate higher growth in 2015, and beyond.

Dividend hike is frequent among companies with a stable cash position and healthy cash flow. The companies that have raised their dividends recently are The Walt Disney Company (DIS) and The Buckle, Inc. (BKE) which increased their dividends by 34% to $1.15 per share and 4.5% to 23 cents, respectively.

We believe that dividend payouts not only enhance shareholder returns but raise the stock’s market value as well. Moreover, such measures enable companies to bolster investors’ confidence, persuading them to either buy or hold the scrip instead of selling it. Looking ahead, Fortune Brands Home & Security remains confident of its growth potential, raising hopes for further enhancement of shareholder value through dividend payments.

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