McCormick & Company Inc. MKC announced a 10.6% hike in its quarterly dividend, to 52 cents per share from 47 cents. The increased dividend is payable on Jan 16, 2018 to shareholders held in record as of Dec 29, 2017.
Notably, this represents McCormick’s32nd consecutive year of dividend hike. In November 2016, the company announced a 9.3% increase in its quarterly dividend, up from 7.5% announced in 2015.
Dividend hike is a prudent strategy used by companies with a stable cash position and solid prospects. Dividend hike not only enhance shareholder returns but also raise the market value of the stock. Hence, companies bank on this strategy to bolster investors’ optimism in the stock.
Apart from regular dividend payments, McCormick’s focus on rewarding shareholders is also evident from share repurchase activities. Evidently, the company has a solid share buyback program of $600 million in place. During the third quarter, the company returned $312 million of cash to shareholders through dividends and share repurchases.
What’s Driving the Shareholder-Friendly Moves?
McCormick strives to increase profits and boost shareholder returns through acquisitions and cost-saving initiatives. The company’s focus on acquisitions is evident from the recent buyout of Reckitt Benckiser’s food division. In the past, the company has acquired Italy-based Enrico Giotti SpA and Australia-based Botanical Food Company.
Moreover, McCormick is resorting to saving costs and enhancing productivity through ongoing Comprehensive Continuous Improvement (CCI) program. Such efforts enabled the company to deliver double-digit growth in adjusted operating income during the third quarter. McCormick now expects to deliver cost savings of at least $105 million in fiscal 2017 and savings of around $400 million by Nov 30, 2019.
What’s Weighing on McCormick?
However, this Zacks Rank #4 (Sell) stock has lost 2.8% in the past year compared with the industry’s decline of 7.5%. The company’s performance is eclipsed by sluggishness in the Europe, Middle East and Africa (EMEA) regions. Sales in the EMEA region have been dismal due to difficult economic, political and competitive factors.
Additionally, higher raw material costs have been a concern for McCormick. Also, the company expects material cost inflation in mid-single digits for fiscal 2017. McCormick has also been increasing brand marketing expenses to drive sales, which may raise expense burden and pressurize results. Nevertheless, we expect cost saving and strategic acquisitions to drive profits and propel the stock in the long term.
Done with McCormick? Find Solace in these 3 Safe Bets
Investors interested in the same sector may also consider stocks such as Michael Kors Holdings Limited KORS, Deckers Outdoor Corporation DECK and Ralph Lauren Corporation RL. While Ralph Lauren and Deckers Outdoor sport a Zacks rank #1 (Strong Buy), Michael Kors carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Michael Kors delivered an average positive earnings surprise of 23.7% in the trailing four quarters. It has a long-term earnings growth rate of 7.5%.
Deckers Outdoor Corporation pulled off an average positive earnings surprise of 88.3% in the trailing four quarters. It has a long-term earnings growth rate of 10.7%.
Ralph Lauren came up with an average positive earnings surprise of 11.6% in the trailing four quarters. It has a long-term earnings growth rate of 15%.
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