Fortune Brands Home & Security, Inc. yesterday announced twin rewards for shareholders in forms of share buyback authorization and quarterly dividends. It communicated that both the rewards were authorized by the company’s board of directors on Jul 13.

We believe that such disbursements reflect the company’s strong cash position and its commitment toward rewarding shareholders handsomely.

Details on Share Buyback & Quarterly Dividend
 
Under the aforementioned buyback authorization, Fortune Brands has been allowed to repurchase up to $400 million shares. The program is valid for the next two years (till Jul 13, 2020), authorizing the company to repurchase common shares in the open market or through privately negotiated transactions.

This, along with $100 million left from the earlier program — which was authorized in April 2018 and is slated to expire on Apr 30, 2020 — allows the company to repurchase up to $500 million of its common shares.

Additionally, the company declared that it has been authorized to pay a quarterly cash dividend of 20 cents per share to shareholders of record as of Aug 31. The payment will be made this year on Sep 19.

Sound Capital Allocation Strategies

Fortune Brands follows sound capital-allocation strategies, aiming to improve values for shareholders. The company uses free resources for the development of products and the improvement of services while making acquisitions and rewarding shareholders through share buybacks and dividend payments.

Over the last five years (2013-2017), the company hiked the dividend rate every year, increasing the annual rate of 30 cents in 2013 to 72 cents in 2017. Notably, it used $214.8 million in cash to purchase treasury stocks while paid dividends of $110.3 million in 2017. In the first quarter of 2018, $29.6 million was paid in dividends while the purchase of treasury stocks amounted to $325.2 million.

Year to date, the company used roughly $600 million to buy back approximately 10 million shares.

Our Take

We believe that rise in Fortune Brands’ profitability and a strong cash position will enable it to return a higher value to shareholders in the years ahead. Notably, the company’s net income jumped 6% year over year in the first quarter of 2018. Exiting the quarter, its cash and cash equivalents were $244.4 million.

Fortune Brands anticipates strengthening business of Global Plumbing Group, expectations for the housing market, share buybacks, favorable pricing and gains from cost actions to drive its performance in 2018. The company increased the projection for earnings before charges/gains to $3.58-$3.70 per share from the earlier forecast of $3.54-$3.66 per share. Also, the revised forecast compares favorably with the year-ago earnings of $3.08. Cash flow from operations in the year is predicted to be $650-$675 million while free cash flow is anticipated to be $525-$550 million.

Zacks Rank & Stocks to Consider

With a market capitalization of $8 billion, Fortune Brands carries a Zacks Rank #4 (Sell). Weak Cabinets sales in 2018, rising cost of sales, operating expenses and high debt levels seems to be the prime concerning factors.

Weak sentiments toward the stock can also be seen from the downward revision in earnings estimates for 2018. The Zacks Consensus Estimate for the stock decreased 0.3% to $3.62 per share in the last 60 days.

Fortune Brands Home & Security, Inc. Price and Consensus