Vulcan Materials Ups Dividend by 400% - Analyst Blog


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The board of directors at Vulcan Materials Company ( VMC ) recently announced a 400% increase in its quarterly dividend.

The largest producer of construction aggregates in the U.S. will now pay a quarterly dividend of 5 cents per share in 2014, much higher than 1 cent paid in 2013. The quarterly dividend is equivalent to an annual dividend of 20 cents per share, yielding 0.3% annually. The first increased quarterly dividend will be payable on Mar 10, 2014, to shareholders of record as on Feb 24, 2014.

We believe the increased dividend will be funded by cash flows from the planned sale of Vulcan's non-core cement and concrete businesses in Florida.

Last month, Vulcan Materials announced its plans to sell these assets located in Florida and South Georgia to Cementos Argos - one of the largest cement and concrete manufacturers and suppliers in the United States - for $720 million in cash. The transaction is expected to close in the first quarter of 2014. Concurrent with the divesture, Vulcan Materials announced that it will initiate a tender offer to purchase $500 million in outstanding debt.

The divestures of these non-core assets will strengthen Vulcan Materials' financial position and help it to focus on flagship aggregates segments. The reduction in debt will lower the company's interest expense, thereby boosting profits.

The divesture is the latest step in Vulcan Materials' planned asset sale initiative announced in Feb 2012. Under the initiative, the company has been divesting its non-core assets in order to focus on the higher-growth Aggregates business. The company has already sold off assets in California and certain markets in Midwest and a small quarry in rural Virginia. Moreover, Vulcan Materials divested portions of the future produce of four aggregate quarries in South Carolina and four quarries in Atlanta to Plum Creek Timber Co. Inc. ( PCL ).

Including the latest divesture, Vulcan Materials has now raised more than $1 billion in total proceeds and lowered debt by almost $800 million. Apart from improving the core aggregates asset portfolio, the proceeds from these transactions is strengthening Vulcan Materials' balance sheet as well which is allowing it to plan such dividend increases.

In fact, Vulcan Materials has seen strong momentum after it announced two back-to back strong quarterly results. Earnings and revenues for both the third and fourth quarters of 2013 grew year over year and beat the Zacks Consensus Estimate.  Pricing gains and volume growth in most of the segments led to the solid results. Growth was driven by improved product demand owing to broad-based recovery in private construction activity, especially residential.

Other Stocks to Consider

Vulcan Materials carries a Zacks Rank #1 (Strong Buy). Other favorable-ranked stocks in the building materials/building cement sector include Anhui Conch Cement Co. Ltd. ( AHCHY ) and USG Corporation ( USG ). While Anhui Conch enjoys the same rank as Vulcan Materials, USG has a Zacks Rank #2 (Buy).


PLUM CREEK TMBR (PCL): Free Stock Analysis Report

USG CORP (USG): Free Stock Analysis Report

VULCAN MATLS CO (VMC): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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More Headlines for: AHCHY , PCL , USG , VMC

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