Watsco Inc. (WSO) hiked its quarterly dividend by 60% to 40 cents per share from its prior dividend of 25 cents. The new dividend will be paid on Oct 31, 2013 to shareholders of record as on Oct 15, 2013.
The increased dividend will take Watsco’s annual dividend yield from the current 1.10% to 1.70%, outscoring its peers such as AAON Inc. (AAON), Lennox International, Inc. (LII) and Comfort Systems USA Inc. (FIX) with dividend yields of 0.48%, 1.28% and 1.27%, respectively.
Watsco has paid quarterly dividends for 38 straight years. Watsco had earlier hiked its dividend by 9% to 62 cents in Jan 2012. In Oct last year, Watsco had paid a special cash dividend of $5.00 per share, approximately two years of dividends based on the then current annual dividend rate of $2.48. In Jan 2013, Watsco announced that it has established a regular quarterly dividend rate of 25 cents per share, cutting the payout 60% from 62 cents per share.
The recent dividend increase came on the back of Watsco’s sound balance sheet and cash position. As of Jun 30, 2012, cash and cash equivalents amounted $25 million and the company's debt-to-total-capitalization remained conservative at 27%.
Watsco expects to meet or exceed its annual target of generating higher operating cash flow than net income in 2013. From 2000 to 2012, operating cash flow was approximately $1.1 billion compared to net income of approximately $900 million, ahead of the company's stated goal.
Watsco reported second quarter 2013 earnings per share of $1.48 and revenues of $1.12 million, both all-time records. In 2013, Watsco expects to generate earnings per share in the range of $3.65 to $3.80, reflecting an annual growth rate of 20% to 25%.
Watsco will continue to benefit from the demand in the replacement market as old units would get replaced by more energy-efficient units in the coming years. There are approximately 90 million central air conditioning and heating systems installed in the United States that have been in service for more than 10 years. Moreover, higher efficiency units drive higher pricing and higher margins for the company.
Watsco is the largest distributor of air conditioning, heating and refrigeration equipment as well as related parts and supplies in the United States. The company operates 508 locations serving over 50,000 customers in 36 states, Puerto Rico, Latin America and the Caribbean. Watsco currently holds a Zacks Rank #3 (Hold).