International Paper Announces Share Buyback, Hikes Dividend
International Paper Company IP has announced that its board of directors authorized a share repurchase program to acquire up to $2 billion of the company's common stock and raised its quarterly dividend by 5.3%.
During the third quarter of 2018, the company repurchased approximately $200 million of its common stock for an average price of $52.03 per share. As of the end of the quarter, the company had $430 million remaining for repurchase under its previous repurchase program. The new authorization is in addition to the previous program. The company intends to continue repurchasing such shares in open market transactions.
International Paper will now pay a quarterly dividend of 5 cents per share or $2.00 annually. The company had last increased its dividend in October 2017 by 2.6%. The proposed dividend is payable on Dec 15 to shareholders of record at the close of business on Nov 15. The board of directors also declared a regular quarterly dividend of $1.00 per share for the period from Oct 1, 2018, to December 31, 2018on the cumulative $4.00 preferred stock of the company. This dividend is also payable on Dec 14, to holders of record at the close of business on Nov 15, 2018.
Based on the closing price of $44.64 on Oct 9, the increased dividend offers a yield of 4.3%. A steady dividend payout is part of the long-term strategy of International Paper to provide attractive risk-adjusted returns to its stockholders. Additionally, decent dividend increases at periodic intervals have been one of the company’s most attractive features.
The current dividend increase reflects the inherent strength of International Paper’s business. It is also a testament to management’s commitment in generating long-term profitability and sustainable free cash flow.
As of Jun 30, 2018, cash and temporary investments aggregated $1,073 million compared with $1,018 million as of Dec 31, 2017. Cash flow from operating activities for the first half of fiscal 2018 was $1,464 million compared with $1,278 million in the prior-year period. Free cash flow for the second quarter of 2018 was $361 million compared with $355 million in the prior-year quarter.
International Paper aims to utilize its sound cash flow by investing in capital projects, reducing its total debt and returning a greater proportion of cash to shareholders through increased dividend payouts and share repurchases. These projects are expected to have a collective internal rate of return of 20%. Moving forward, International Paper intends to focus more resources on high-return capital projects within its core businesses that can drive additional earnings growth. The company anticipates EBITDA to increase by approximately 5% in the near future through diligent execution of its operational plans.
However, the company’s shares have plunged 22% in the past year, compared with the industry’s decline of 7%.
Elevated input costs, higher distribution costs due to a very tight truck and rail availability, and increased diesel fuel cost has been weighing on the stock.
International Paper currently carries a Zacks Rank #4 (Sell).
Stocks to Consider
Better-ranked stocks in the same industry include CF Industries Holdings, Inc. CF, Methanex Corporation MEOH and Ecolab Inc. ECL. While CF Industries and Methanex Corporation sport a Zacks Rank #1 (Strong Buy), Ecolab carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
CF Industries has a long-term earnings growth rate of 6%. The stock has rallied around 59% in a year’s time.
Methanex Corporation has a long-term earnings growth rate of 15%. The company’s shares have appreciated around 63% over the past year.
Ecolab has a long-term earnings growth rate of 12.8%. Its shares have gained 17% in the past year.
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