Watsco Boosts Investors' Sentiments With 11% Dividend Hike

While many companies are suspending/delaying dividend distribution in the event of recent economic slowdown resulting from shutdowns due to coronavirus pandemic, Watsco, Inc. WSO has boosted investors’ sentiments with dividend hike. The company announced a 11% increase in quarterly cash dividend to $1.775 per share, payable on Apr 30 to its shareholders of record as of Apr 15, 2020.

Earlier, Watsco’s board had approved an increase in annual dividend rate to $7.10 per share owing to strong operating cash flow recorded in 2019. The recent move indicates its sound financial position and intention to utilize free cash for enhancing its shareholders’ returns.

Notably, Watsco has been paying dividend for 46 consecutive years. We note that dividend hikes are becoming a regular event for this heating, ventilation and air conditioning solution provider. The company has a consistent track record of increasing dividends. Notably, it paid dividends of $241 million in 2019.

What’s Driving the Dividend Policy?

The Zacks Building Products - Air Conditioner & Heating industry — which includes companies like AAON, Inc. AAON, Comfort Systems USA, Inc. FIX and Lennox International Inc. LII — has been experiencing higher demand, courtesy of continued strength in the housing industry backed by years of low interest/mortgage rates and a drop in unemployment rate. Also, continued investments in technologies designed to revolutionize customer experience are benefiting the industry.

Watsco is deploying technology that improves order fill rates with speed and accuracy, thereby improving customer experience. Notably, it has the industry’s largest database of digitized product information, with more than 800,000 SKUs. In 2019, e-commerce sales grew 17% from the 2018 level. E-commerce transactions also increased 20% year over year to more than 1 million. Encouragingly, the number of unique iOS or Android app weekly users increased 60% from 2018.

In addition to technology deployments, Watsco is solidifying the product portfolio and leveraging new business opportunities through buyouts. On Dec 3, 2019, the company acquired Fishkill, NY-based N&S Supply — a distributor of air conditioning, heating and plumbing products. The buyout expanded Watsco’s sales in the Northeast United States.

However, the recent coronavirus outbreak is likely to disrupt the supply chain in the near term. Also, extreme weather conditions and rising raw material costs due to tariffs and trade restrictions have been hurting its profit margins. Earnings estimates for this Zacks Rank #3 (Hold) company have moved south over the past 30 days, reflecting analysts’ concern surrounding its prospects.

Nonetheless, shares of the company have outperformed the industry in the year-to-date period. Hence, investors have reasons to still have faith in the company’s fundamentals and growth potential, irrespective of current market conditions.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Watsco, Inc. (WSO) : Free Stock Analysis Report
 
Lennox International, Inc. (LII) : Free Stock Analysis Report
 
AAON, Inc. (AAON) : Free Stock Analysis Report
 
Comfort Systems USA, Inc. (FIX) : Free Stock Analysis Report
 
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