The Goodyear Tire & Rubber Company
) updated its capital allocation plan for 2014 to 2016. Under this
new plan, the company intends to increase shareholders' returns and
expects favorable impacts from opportunities in North America and
Goodyear recorded strong cash flow in 2013. As a result, the
company was able to pay off the entire pension fund of $1.15
billion. Thus, the company has plans to reallocate around $1.1
billion of its 2014-2016 cash flow.
With this fund, Goodyear plans to enhance shareholders' value,
strengthen the balance sheet and invest in projects with high rate
of return. The company has increased its allocation for capital
expenditures by $300 million. This will be utilized for building a
new plant which will serve the company's North American and Latin
American consumer tire businesses. Goodyear expects the
high-value-added consumer replacement and original equipment tire
markets in these two regions to grow.
Next, in order to enhance shareholders' returns, Goodyear will hike
its dividend payout and increase its share repurchase
authorization. It plans to boost its dividend by 20% to 6 cents per
share from 5 cents from Sep 2014. This will raise the company's
dividend payment to 22 cents for 2014 and 24 cents per share for
Moreover, Goodyear will be expanding its share repurchase program
by $350 million. This will enable the company to repurchase shares
worth about $450 million by 2016. Goodyear may augment shareholder
returns by an additional $250 million, making a total return of
$900 million, depending on its performance.
Goodyear will be allocating an additional $400 million for debt
reduction. This will improve Goodyear's leverage metrics and
support the company in achieving an investment grade credit rating.
Goodyear is witnessing a rising demand for its tires in North
America and Latin America. In order to maintain its leading
position and enhance its earnings beyond 2016, the company plans to
invest $500 million to construct the new plant.
This plant will have advanced technology and an initial
production capacity of about six million tires per year. Goodyear
will increase the capacity depending on the demand. However, the
location of the plant is yet to be finalized and the production
will initiate from the first half of 2017.
For the period 2014-2016, Goodyear reaffirmed its target of a
10-15% increase in annual segment operating income. The company
also targets achieving positive free cash flow from operations per
annum during this period. Moreover, the company expects a 2-3%
increase in unit volumes in 2014.
Goodyear Tire is one of the largest tire manufacturing companies in
the world. The company currently retains a Zacks Rank #3 (Hold).
Modine Manufacturing Co.
Magna International Inc.
) are some better-ranked stocks worth considering. Gentherm and
Modine carry a Zacks Rank #1 (Strong Buy), while Magna is a Zacks
Rank #2 (Buy) stock.
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free report
GOODYEAR TIRE (GT): Free Stock Analysis Report
GENTHERM INC (THRM): Free Stock Analysis Report
MAGNA INTL CL A (MGA): Free Stock Analysis
MODINE MANUFACT (MOD): Free Stock Analysis
To read this article on Zacks.com click here.