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Watsco, Inc. (WSO - Free Report) declared a 10% hike in its annual dividend rate to $6.40 per share, in a bid to impress investors. The dividend will be payable on Jan 31, 2019 to its shareholders of record at the close of business on Jan 16, 2019. The dividend will be payable on each outstanding share of its Common and Class B common stock.
Te latest increase marks the 45th consecutive year of dividend hike, reflecting its strong cash position and solid balance sheet.
Watsco’s strategy is to share increasing amounts of cash flow through higher dividends, while maintaining a conservative balance sheet with consistent capacity to build its distribution network. The company’s balance sheet remains conservative, with a debt-to-capital ratio of 7%.
Moreover, since 2000, its cash flow of approximately $2.2 billion has been surpassing its stated goal of generating cash flow in excess of net income i.e. approximately $2.0 billion. Consequently, the company continues to look for investments to grow its network, as well as invest in acquisitions or mergers. In October, the company acquired Alert Labs, a technology company in Canada. The acquisition will help Watsco grow its customer base and profitability. Also, the buyout will help in leveraging technology investment, enhancing productivity and reducing costs.
The company is highly focused on boosting its shareholders’ value through regular dividend hikes and the share repurchase program. In September 1999, the company announced the authorization of a repurchase program. As part of this program, it has repurchased 6,370,913 shares for approximately $114.4 million since its inception.
In the first nine months of 2018, the company’s adjusted earnings grew 17.5% on a year-over-year basis to $5.43 per share. The upside stemmed from higher unit demand in HVAC equipment, as well as improved pricing and sales mix. Continued investment in the technologies designed to revolutionize Watsco’s customer experience also added to the positives.
However, shares of Watsco have lost 21.2% in the past six months, underperforming its industry’s decline of 9.3%. The downside was mainly due to softness in Florida and Mexico markets, along with increased SG&A expenses. The company’s digitization of business has substantially increased the same over the past three years and is likely to reach approximately $25 million in the near future.
Nonetheless, the company expects its adjusted earnings for 2018 to be in the range of $6.40-$6.50 per share compared with $5.54 recorded in 2017, representing growth of 16-17%.
Zacks Rank & Stocks to Consider
Currently, Watsco carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the Zacks Construction sector are Masco Corporation (MAS - Free Report) , Lennox International, Inc. (LII - Free Report) and Owens Corning Inc (OC - Free Report) , each carrying a Zacks Rank #2 (Buy).
Masco’s earnings are expected to grow 24.2% and 12.8% in 2018 and 2019, respectively.
Lennox’s 2018 and 2019 earnings are expected to grow 18.9% and 31.3%, respectively.
Owens Corning’s earnings for 2018 and 2019 are expected to increase 7.7% and 16.6%, respectively.
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