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Pentair (PNR) Hikes Dividend, Okays New Share Buyback Program

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Zacks Equity Research
·4 min read
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Pentair Plc PNR recently announced a 5% hike in quarterly dividend payout and a new share repurchase program of up to $750 million of the company’s shares. These moves are in sync with its long-standing commitment of returning capital to shareholders. It’s worth mentioning that this marks the 45th consecutive year of dividend increase for Pentair.

The company’s board of directors approved a 5% or 1 cent per share hike in the quarterly dividend rate. This takes the quarterly payout to 20 cents and translates to an annual dividend of 80 cents. Pentair will pay the revised dividend on Feb 5, 2021, to shareholders on record as of Jan 22, 2021.

Its board of directors has also sanctioned the repurchase of shares worth up to $750 million, effective immediately. The new program has an expiration date of Dec 31, 2025 and supplements the prior $750 million authorization that is set to expire on May 31, 2021. The company has $100 million remaining available under its old repurchase program as of Dec 7, 2020.

In March, the company had temporarily suspended share repurchase to enhance its liquidity position amid the COVID-19 crisis. The suspension of share repurchases has since been lifted. During the nine months ended Sep 30, 2020, the company repurchased 3 million of its shares for $115.2 million.

The dividend hike comes after a hiatus of one year. Pentair had last raised the quarterly dividend rate by 6% to 19 cents. The raised dividend takes the company’s dividend yield from the current 1.49% to 1.56% higher than peers Xylem Inc. XYL and IDEX Corporation’s IEX 1.06% and 1.05%, respectively.

Pentair has a current payout of 30.5%. In the first nine months of the year, the company’s free cash flow soared 106% year over year to $457 million. In the first three quarters of 2020, the company paid out a dividend of $95.4 million in cash to shareholders, reflecting an increase of 3% from the year-ago comparable period. The company exited third-quarter 2020 with cash and cash equivalents of $82.6 million.

The company’s total debt to total capital ratio stood at 0.28 at the end of third-quarter 2020, lower than the industry’s 0.34. Notably, its total debt to total capital ratio has also gone down considerably over the past several quarters. Pentair's times interest earned ratio has also improved over the last few quarters and is currently pegged at 17.1X.

It is poised well to benefit from the ongoing strong demand in the residential focused businesses amid the COVID-19 pandemic. The company has raised adjusted earnings per share guidance to the range of $2.35 to $2.40 and revenues at around $2.95 billion, backed by its strong pool performance. The company is also likely to gain from restructuring initiatives, productivity improvement, price hikes and efforts to reduce debt level.

Plans to expand in the areas of pool and residential and commercial water treatment through investments and acquisitions will also favor the company. Moreover, cost-reduction initiatives, strong product pipeline and concerted efforts to make investments in digital transformation and technology will drive growth. We believe that impressive financial performance in the upcoming quarters will enable it to continue rewarding its shareholders.

In the past 60 days, the Zacks Consensus Estimate for earnings has increased 10% to $2.43 for 2020 and 8% to $2.69 for 2021. Also, earnings estimates for fourth-quarter 2020 have increased 5% to 63 cents per share.

Price Performance

In the past six months, the stock has gained 28.1% compared with the industry’s rally of 36.7%.

Zacks Rank & Another Key Pick

Pentair currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Another top-ranked stock in the Industrial Products sector is Crown Holdings, Inc. CCK which carries a Zacks Rank of 2, at present.

Crown Holdings has a projected earnings growth rate of 11.7% for 2020. Over the past six months, the company’s shares have gained 46.7%.

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