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KB Home Lures Investors With 260% Quarterly Dividend Hike

Zacks Equity Research

KB Home KBH recently announced a hike in dividend payout, maintaining its 30-year long-standing commitment of increasing stockholder returns. This hike is reflective of the homebuilder’s achievement of increasing both scale and profitability, improving asset efficiency, along with monetizing deferred tax assets under the Returns-Focused Growth Plan, thereby enabling it to generate solid operating cash flow.

The company more than tripled (approximately by 260%) its quarterly dividend to 9 cents per share (36 cents annually) from 2.5 cents (10 cents annually). This new dividend, approved by the company’s board of directors, will be paid on Aug 15, 2019 to its stockholders of record as of Aug 1. The dividend yield, based on the latest payout and Jul 15 closing market price, is approximately 1.37%.

Recently, KB Home reported better-than-expected results for second-quarter fiscal 2019. The company mainly benefited from continued progress of the Returns-Focused Growth plan. Two key objectives of this plan are growth of business and strengthening of its balance sheet. The last reported quarterly results demonstrate achievement in both fields, with average community count growth of 17% year over year and a 930-basis point reduction in debt-to-capital ratio to 45.8%. The company remains upbeat about further improvement in results in the second half of this year.

After a tough second-half 2018, the U.S. housing market has started showing some strength since the beginning of 2019. Declining mortgage rates and moderate home prices have been adding strength to KB Home and other homebuilders. This is evident from the sequential improvement in overall fiscal second-quarter results of this Los Angeles, CA-based homebuilder.

Meanwhile, a glimpse of KB Home’s price performance reveals that it has outperformed the industry so far this year. The stock has gained 37.8% compared with its industry’s 28.8% growth in the said period. Also, it has outperformed the S&P 500’s 18.7% rise in the said period. Earnings estimates for the current year have moved 2.3% upward over the past 30 days to $2.69 per share, suggesting 57.3% year-over-year growth. The company’s performance was mainly driven by a solid surprise history, having surpassed the Zacks Consensus Estimate in each of the trailing 14 quarters.



 

Zacks Rank & Key Picks

Currently, KB Home carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are NVR, Inc. NVR, M.D.C. Holdings, Inc. MDC and Taylor Morrison Home Corporation TMHC, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NVR and Taylor Morrison surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 17.6% and 38.7%, respectively.

M.D.C. Holdings has three-five year expected EPS growth rate of 8.4%.

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