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Badger Meter Hikes Quarterly Dividend on Strong Cash Flow

Zacks Equity Research

Badger Meter, Inc. BMI recently announced a 13.3% year-over-year hike in its quarterly dividend payout. The proposed dividend of 17 cents per share or 68 cents on an annualized basis is payable Sep 13, 2019 to shareholders of record as on Aug 30.

Based on the closing price of $53.89 on Aug 12, the proposed dividend affirms a yield of 1.26%. A steady dividend payout is part of the company’s long-term strategy to provide attractive risk-adjusted returns to its stockholders. In addition, healthy dividend increases at periodic intervals have been one of its major strengths.

This is the 27th consecutive year of dividend increase for Badger Meter. Dividend per share of the company witnessed a CAGR of 11.6% from 2007-2018. The current hike reflects the inherent financial strength of the company and strong cash flow generated from continued focus on high-margin businesses and a healthy execution of operating plans.

During the second quarter, Badger Meter generated $23.1 million of net cash from operations compared with $18.4 million a year ago, bringing the tally for first-half 2019 and first-half 2018 to $40.9 million and $25.2 million, respectively. Free cash flow was about $20.8 million, up 28% from the prior-year quarter. Notably, the cash flow of the company witnessed a CAGR of 16.2% from 2010-2018 and has offered a solid platform to maintain a healthy balance sheet position with regular dividend increase.

The company has underperformed the industry in the year-to-date period with average return of 9.5% compared with 17.7% rise for the latter.

Badger Meter has announced technology wins with Columbia, SC and Aurora, CO, which highlight the increasing market acceptance for cellular products as the standard Advanced Metering Infrastructure solution for water utilities. The state-of-the-art products will help to reduce water loss, promote conservation and improve water delivery. Badger Meter’s BEACON software-as-a-service offering would also facilitate to collect and analyze data within the distribution network to improve operational awareness.

Moving forward, management remains optimistic about the company’s prospects, supported by a number of reasons like solid backlog and customer acceptance of its new products. It is poised to gain from strong order rates for innovative water solutions, including the newly launched E-Series Ultrasonic meters and ORION Cellular LTE-M radios. Badger Meter’s opportunities for 2019 and beyond include Phyn — a joint venture between Belkin International, Inc. and Uponor Corporation — which utilizes its D-Flow ultrasonic technology in a smart water monitoring system for residential use. Moreover, inclusion in AT&T’s Smart City Alliance, a framework created by AT&T Inc. T, will allow Badger Meter to explore new ways for its smart water solutions to join forces with industry-leading cellular networks.

Badger Meter presently has a Zacks Rank #5 (Strong Sell). Better-ranked stocks in the broader industry include Kyocera Corporation KYOCY and Universal Display Corporation OLED, both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Kyocera has a long-term earnings growth expectation of 12.9%.

Universal Display Corporation has a long-term earnings growth expectation of 30%. It topped estimates thrice in the trailing four quarters, the average positive earnings surprise being 61.9%.

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