) board of directors approved a 16.7% hike in the quarterly
distribution rate to 49 cents from 42 cents. The new
annualized dividend will be $1.96 per share, reflecting an annual
dividend yield of 2.59%, significantly higher than the industry
average of 1.01%.
The investors were expecting a revision in the dividend rate, as
the company exited 2013 on a strong note and portrayed clear
visibility regarding its growth prospects in 2014 from 2013
levels. Eaton will continue to benefit from the Cooper
acquisition and its consolidated markets in 2014 are expected to
improve by 3% year over year.
Eaton is expected to generate operating cash flow of $2.7 billion
to $2.9 billion, with free cash flow in the range of $2 billion
to $2.2 billion in 2014, which we believe is more than enough to
pay for the increased dividend. Eaton has a long history of
dividend payments, having paid it every year since 1923.
Apart from using its cash generation for dividend payouts, the
company is also systematically repaying the debt it incurred to
fund the Copper acquisition. If the repayment schedule goes per
plans, the company will be able to clear its acquisition debts by
early 2016. This will further strengthen the balance sheet of
Eaton and lower its interest burden creating possibilities for
higher dividend payments.
Eaton expects earnings for 2014 to range from $4.50 to $4.90 per
share. The Zacks Consensus Estimate of $4.80 per share in near
the higher end of the guidance range.
Eaton currently has a Zacks Rank# 3 (Hold). However, other
better-ranked stocks in the industry that are worth considering
Lincoln Electric Holdings Inc.
). All these stocks presently carry a Zacks Rank #2 (Buy).
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