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Quanta Services, Inc. PWR recently announced a hike in dividend payout, maintaining its long-standing commitment of increasing stockholder returns. This hike is reflective of its confidence in the stability of the core business, long-term prospects and solid financial position. The move will also enable it to enhance stockholder value.
The company boosted (approximately by 20%) quarterly dividend to 6 cents per share (24 cents annually) from 5 cents (20 cents annually). This new dividend, approved by the board of directors, will be paid on Jan 15, 2021, to stockholders of record as of Jan 4. The dividend yield, based on the latest payout and Dec 11 closing market price, is approximately 0.33%.
Notably, a dividend increase not only enhances shareholder returns but also raises a stock’s market value. In fact, companies often tend to attract new investors and retain the old ones through this strategy. So far this year, shares of the company have gained 77.1%, outperforming the Zacks Engineering - R and D Services industry’s 3.4% rise.
What Led to the Dividend Increase?
Solid growth strategy, strong Electric Power operations, prudent inorganic moves along with sufficient liquidity level have been driving the company’s performance.
Quanta Services is pursuing a three-pronged growth strategy focusing on timely delivery of projects to exceed customer expectation; leverage on core business to expand in complementary adjacent service lines and continuation of exploring new service lines. Overall, the company’s engineering and project management capabilities allow it to capitalize on market trends that are currently skewed toward an engineering, procurement and construction or EPC model. The company ended the third quarter with a total backlog of $15.1 billion and 12-month backlog of $8.1 billion. This compares favorably with $13.3 billion of total backlog and $7.6 billion of 12-month backlog a year ago. This demonstrates strength in the company’s core operations.
Electric Power operations continued to execute well from a top-line perspective. Segment revenues, which comprise revenues from base business activities including communications operations, grew 7.5% for the first nine months of 2020 from a year ago. Solid performance was backed by base business activities, courtesy of robust spending by electric utilities on grid modernization and infrastructure hardening, particularly in the western United States as well as by gas utilities on distribution system modernization and safety programs. As of Sep 30, 2020, the segment’s 12-month backlog was $5.9 billion and total backlog was $10.8 billion, up from $4.9 billion and $8.6 billion, respectively, a year ago.
Meanwhile, Quanta Services sees acquisitions as a fundamental component of its strategy to boost market share and develop incremental backlog. The company acquired five businesses in the first nine months of 2020. For the first nine months of 2020, acquired businesses contributed $325 million to total revenues.
Quanta Services has been maintaining a strong liquidity position to navigate through the current environment. The company ended the third quarter with $2.2 billion liquidity, including $216.9 million in cash and cash equivalents. Its current cash level is sufficient to meet the short-term obligation of $97.4 million, down sequentially from $162.2 million. Long-term debt obligations (including operating lease liabilities, net of current portion) totaled $1.39 billion, down from $1.5 billion reported at second quarter-end.
Backed by the solid results through the first nine months of 2020, the company (during its third-quarter earnings call) raised 2020 expectations for net income, EBITDA and EPS. Its 80-90% of revenues are derived from utility, communications, and a few pipeline and industrial infrastructure services, which continue to be strong.
Quanta Services — which shares space with Gates Industrial Corporation PLC GTES, AECOM ACM and KBR, Inc. KBR in the same industry — currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
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