Seeking Alpha
Profile| Send Message|
( followers)  

McCormick & Co. Inc. (NYSE:MKC) recently announced that it will award shareholders of record as of July 6, 2010 with 26 cents a share in dividend. It had last raised its dividend on March 31, 2010 by 2 cents a share.

McCormick also enhanced its shareholder value by authorizing a repurchasing plan of $400 million. At a price of $39.55, the current authorization represents approximately 10 million shares. As of February 28, 2010, McCormick had 134 million of common shares outstanding. The current share repurchase authorization will inflate the figure to 144 million of common shares outstanding.

The debt-to-total-capital ratio was 43.3% as of February 28, 2010, down from 53.8% at February 28, 2009. The reduction in debt is due to a decrease in the company’s borrowings. It also reflects the fact that the company has been consistently using excess cash to reduce its debt incurred from the Lawry acquisition in fiscal 2008. McCormick has almost succeeded in repaying its debt and expects to be active in share repurchase activity by the end of fiscal 2010.

McCormick’s current annualized dividend yield of 2.6% surpasses the 5-year average dividend yield of 2.3%. Also, McCormick’s trailing twelve months’ dividend payout ratio of 42.47% is higher than the industry’s 20.04%. Furthermore, McCormick commands industry leading net margins; its trailing twelve months’ net margin of 8.98% comfortably surpasses the industry margin of 2.95%.

The company has a history of rewarding shareholders with dividends for 86 years, which indicates that McCormick is in a consistently good cash position and has the ability to provide superior value to its shareholders. We appreciate McCormick’s concerted effort to enhance shareholder return even in times of a lackluster economy when other companies are struggling with the recession.

Companies can use excess cash for strategic acquisitions and share repurchase activity. Share repurchase, however, represents an effective means to increase the value of shareholders. It enhances the flexibility to grow market share. Thus, the best investment tool for a company is in its own shares.

Our Take

McCormick is a global leader in the manufacture, marketing and distribution of spices, herbs, seasonings, flavorings and other specialty food products to the entire food industry.

Dividends and share buyback programs are making a comeback this year after both slumped last year when companies hoarded cash in the wake of the financial crisis. We believe that the increase in dividend payment reflects the company’s good shape and its ability to drive future growth

Source: McCormick Boosts Shareholder Value