Ecolab Beefs Dividend by 15%

Leading cleaning and sanitation products maker Ecolab Inc. ( ECL - Analyst Report ) has increased its quarterly cash dividend to 23 cents from 20 cents, representing a 15% growth. This increases the annual dividend to 92 cents per share from the current payout of 80 cents, which equates to a dividend yield of roughly 1.3%. The revised quarterly dividend is payable on December 28, 2012, to shareholders of record as on December 18, 2012.

This represents the company’s 21^st consecutive annual dividend increase, reflecting its commitment to deliver incremental returns to investors leveraging a solid free cash flow and strong earnings. The company’s previous dividend increase was in December 2011, when it raised the quarterly payout by 14.3% to 20 cents a share from 17.5 cents.

The company’s share prices inched up 1.7% to close at $72.39 on December 6, 2012. This is quite expected as dividend hike has been a regular practice for the past 20 years.

Ecolab has a strong liquidity position to support the dividend hike. It exited the third quarter of 2012 with cash and cash equivalents of $324 million, up 56.3% from the previous-year quarter.

The company continues to invest in strategic areas such as health care, food, water and energy and global pest elimination to expand its business. Apart from boosting shareholders return, Ecolab also utilizes its cash balance to acquire complementary businesses to drive long-term growth.

In an effort to expand its Global Energy Services franchise, Ecolab in October 2012, agreed to acquire privately-owned Champion Technologies and its related company Corsicana Technologies. This is Ecolab’s biggest acquisition since the company acquired Nalco in 2011. Following the closure of the deal by year-end, the company is slated to become a giant in the oilfield chemical business.

Moreover, the company has been delivering strong earnings, as it has managed to meet the Zacks Consensus Estimate in three of the last four quarters while beating the same by 4.17% on one occasion. The current Zacks Consensus Estimates for the fourth and the full-year 2012 are 89 cents and $2.98, respectively.

However, we remain cautious about acquisition-related risks and the company’s increasing debt. Raw material price fluctuations and tough competition from the likes of The Clorox Company ( CLX - Analyst Report ) and Church & Dwight Co. Inc. ( CHD - Snapshot Report ) remains potential headwind.

We currently have a ‘Neutral’ recommendation on Ecolab. The stock carries a short-term Zacks #3 Rank (Hold rating).

St. Paul, Minnesota-based Ecolab serves the food service, food and beverage processing, healthcare, energy, water treatment and hospitality markets both in the U.S. as well as internationally.