Owens Corning OC recently hiked its quarterly dividend by 11% to 20 cents per share. The new dividend will be paid on Jan 18 to shareholders on record as of Jan 3, 2016. The annualized dividend now amounts to 60 cents per share with a dividend yield of 1.2%, based on Owen's closing price of $51.91 as of Dec 2, 2016. Last time, the company increased its dividend by 6% on Feb 10, 2016.
Dividend hike is a prudent strategy for enhancing shareholder returns and raising the market value of the stock. It is primarily used by companies with a stable cash position and solid future prospects. Consequently, companies bank on this strategy to bolster investors’ confidence in the stock, persuading them to either buy or hold the scrip instead of selling it.
Additionally, Owens Corning repurchased 1.6 million shares of its common stock for $86 million during third-quarter fiscal 2016 ended Sep 30, 2016. Further, the company approved an additional share repurchase authorization for up to 10 million shares during its third-quarter conference call.
At the end of third-quarter fiscal 2016, the company had a solid financial position with total assets worth $7.9 billion (up 5.3% from the year-ago level). The company had cash and cash equivalents of $110 million compared with $62 million from the year-ago period. The dividend hikes reflect the company’s focus on returning more profit to shareholders. This initiative not only retains investors’ confidence in the stock but also attracts new investors.
Notably, the shares of this Zacks Rank #3 (Hold) building material retailer has gained 10.4% compared with the Zacks categorized Building & Construction Product Miscellaneous industry, which has showcased a gain of 17.5%. Although the stock has underperformed compared to the Zacks Subindustry group, it carries a VGM Score of “A.” The stock carries a P/E ratio of 14.8 compared to an Industry P/E ratio of 18.74. Hence we believe although the stock is underpriced now, there is scope for its price to appreciate.
We believe that the dividend hike will not only help improve shareholder returns but also enhance the company’s goodwill and enable it to tackle peer competition.
Other Stocks to Pick
Better-ranked stocks in the construction sector include Gibraltar Industries, Inc. ROCK, Hovnanian Enterprises Inc. HOV and AAON, Inc. AAON.
Gibraltar’s full-year 2016 earnings are expected to grow 44.9% and it sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Hovnanian, a Zacks Rank #2 (Buy) stock, is likely to witness 190.9% growth in fiscal 2016 earnings.
AAON also carries a Zacks Rank #2 and earnings for the company are expected to rise 12% in the next five years.
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