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Orchids Paper Products Company (TIS - Snapshot Report), an integrated manufacturer of tissue paper products, recently announced a 20% year-over-year hike in its dividend payout to a quarterly payment of 30 cents per share or $1.20 on an annualized basis. The first quarter 2013 dividend is payable on Mar 29 to shareholders of record as of Mar 19.

Based on the closing price of $23.77 on Mar 8, 2013, the proposed dividend affirms a healthy yield of 5.05%. A steady dividend payout is part of the long-term strategy of Orchids to provide attractive risk-adjusted returns to its stockholders. In addition, decent dividend increases at periodic intervals have been one of the company’s most attractive features.

The company had earlier raised the quarterly dividend payout from 20 cents to 25 cents per share or from 80 cents to $1.00 on an annualized basis in fourth quarter 2012. Prior to that, Orchids raised its quarterly dividend in fourth quarter 2011 from 10 cents to 20 cents per share.

The recent dividend hike follows strong quarterly and annual results, with Orchids reporting record net sales of $100.8 million for full year 2012. The superior performance was attributable to increased market penetration in the mid- and premium-tier segments, with a diligent focus on new product developments and emphasis on delivering the best-in-class customer service. Orchids also has a healthy liquidity position with a cash balance of $5.7 million at year-end 2012, while free cash flow for the year was $1.4 million.

Orchids manufactures bulk tissue paper (known as parent rolls) and converts parent rolls into finished products, such as paper towels, bathroom tissue and paper napkins. The company primarily sells its products to value retailers and discount retail stores due to their high overall market growth, consistent order patterns and low number of stock keeping units.  

Despite its niche market, Orchids faces stiff competition from other players in the industry such as Clearwater Paper Corporation (CLW - Snapshot Report), and International Paper Company (IP - Analyst Report), each carrying Zacks Rank #2 (Buy). On the other hand, both Orchids and one of its peers Fibria Celulose SA (FBR - Snapshot Report) presently have a Zacks Rank #3 (Hold).

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