Fortune Brands To Pay Dividend, Repurchase $150M Shares

Fortune Brands Home & Security, Inc. (NYSE:FBHS) yesterday announced twin rewards for shareholders in forms of quarterly dividends and share buyback authorization. This news was disclosed after the company released first-quarter 2018 results on Apr 26.

We believe that such disbursements reflect the company’s strong cash position and its commitment toward rewarding shareholders handsomely.

Details on Quarterly Dividend & Share Buyback

As noted, the company’s board of directors approved the payment of a quarterly dividend of 20 cents per share to shareholders of record as of May 25. The payment will be made this year on Jun 13.

The quarterly dividend rate was increased by 11%, from 18 cents to 20 cents in December 2017. This revision resulted in an annual rate of 80 cents, surpassing the previous rate of 72 cents.

Concurrent with the dividend announcement, the company’s board of directors approved share buyback program of $150 million. As noted, the program is valid for the next two years, authorizing the company to repurchase common shares in the open market or through privately negotiated transactions.

This along with $160 million left from the earlier program — which was authorized in December 2017 and is slated to expire on Dec 8, 2019 — allows the company to repurchase up to $310 million of its common shares.

Sound Capital Allocation Strategies

Fortune Brands follows sound capital-allocation strategies, aiming to improve values for shareholders. The company uses free resources for the development of new products and the improvement of services while making meaningful acquisitions and rewarding shareholders through share buybacks and dividend payments.

Over the last five years (2013-2017), the company hiked dividend rate every year, increasing the annual rate of 30 cents in 2013 to 72 cents in 2017. Notably, it used $214.8 million cash to purchase treasury stocks while paid dividends of $110.3 million in 2017. In the first quarter of 2018, total $29.6 million was paid in dividends while purchase treasury stocks amounted to $$325.2 million.

Our Take & Projections, Company Guidance

We believe that rise in Fortune Brands’ profitability and a strong cash position will enable it to return a higher value to shareholders in the years ahead. Notably, the company’s net income jumped 6% year over year in the first quarter of 2018. Exiting the reported quarter, its cash and cash equivalents were $244.4 million.

Fortune Brands anticipates that strengthening business of Global Plumbing Group, expectations for the housing market, share buybacks, favorable pricing and gains from cost actions will drive its performance in 2018.

The company increased the projection for earnings before charges/gains to $3.58-$3.70 per share from the earlier forecast of $3.54-$3.66 per share. Also, the revised forecast compares favorably with the year-ago earnings of $3.08. Cash flow from operations in the year is predicted to be $650-$675 million while free cash flow is anticipated to be $525-$550 million.

Over the last seven days, earnings estimates of the stock were increased by one brokerage firms for 2018 and by two firms for 2019. Currently, the Zacks Consensus Estimate is pegged at $3.64 for 2018 and $4.04 for 2019, reflecting growth of 0.3% and 0.2% from the respective seven-day-ago tallies.

Fortune Brands Home & Security, Inc. Price and Consensus