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Orchids Increases Dividend Yet Again

Zacks Equity Research

Orchids Paper Products Company (TIS), an integrated manufacturer of tissue paper products, recently announced a 16.7% year over year hike in its annual dividend payout to $1.40 per share on an annualized basis. The second quarter 2013 cash dividend of 35 cents is payable on Jun 21 to shareholders of record as of Jun 7.

Based on the closing price of $23.01 on May 17, 2013, the proposed dividend affirms a healthy yield of 6.1%. A steady dividend payout is part of the long-term strategy of Orchids to provide attractive risk-adjusted returns to its stockholders. In addition, decent dividend increases at periodic intervals from the company have been one of its strong points.

This is the third consecutive quarter in which Orchids has increased its quarterly dividend by 5 cents each. The company had earlier raised the quarterly dividend payout from 25 cents to 30 cents per share or from $1.00 to $1.20 on an annualized basis in Mar 2013. Prior to that, Orchids raised its quarterly dividend in Nov 2012 from 20 cents to 25 cents per share.

The recent dividend hike follows strong quarterly results, with Orchids reporting record net sales of $26.6 million in first quarter 2013. The superior performance was attributable to increased market penetration in the mid- and premium-tier segments, with a diligent focus on new product developments and emphasis on delivering the best-in-class customer service. Orchids also has a healthy liquidity position with a cash balance of $5.5 million at quarter-end, while cash flow provided by operating activities in the reported quarter was $4.2 million.

Orchids manufactures bulk tissue paper (known as parent rolls) and converts parent rolls into finished products, such as paper towels, bathroom tissue and paper napkins. The company primarily sells its products to value retailers and discount retail stores due to their high overall market growth, consistent order patterns and low number of stock keeping units.  

Despite its niche market, Orchids faces stiff competition from other players in the industry such as Potlatch Corporation (PCH), Resolute Forest Products Inc. (RFP), and PH Glatfelter Co. (GLT), each carrying Zacks Rank #1 (Strong Buy). Orchids presently have a Zacks Rank #4 (Sell).

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