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Martin Marietta (MLM) Cheers Investors With 4% Dividend Hike

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Martin Marietta Materials, Inc. (MLM - Free Report) announced a 4% quarterly cash dividend hike to 57 cents per share, payable on Sep 30 to shareholders of record as of Sep 1, 2020, in a bid to impress investors.

While many companies have suspended their dividend distribution due to uncertain economic conditions resulting from the coronavirus pandemic, Martin Marietta’s financial position is resilient and the business model is durable. Notably, its solid capital allocation strategy — which is a testimony to the fact that it is well positioned amid the COVID-19 pandemic — drives long-term sustainable growth and shareholder value.

On Aug 14, 2019, its board approved a 14.6% increase in the annual dividend rate to $2.20 per share from $1.92. This marked one of the largest hikes in the company’s history owing to strong cash generation, balance sheet strength and operational excellence.

Notably, Martin Marietta has been paying dividend over the past two decades. We note that dividend hikes are becoming a regular event for this producer and supplier of construction aggregates, as well as other heavy building materials. The company has a consistent track record of increasing dividends. Notably, it paid dividends of $129.8 million in 2019.

What’s Driving the Dividend Policy?

The Zacks Building Products - Concrete and Aggregates industry — including companies like Forterra, Inc. (FRTA - Free Report) , Cornerstone Building Brands, Inc. (CNR - Free Report) and CEMEX, S.A.B. de C.V. (CX - Free Report) — has been experiencing higher demand, especially in public sector construction activity like large transportation projects and highways. Also, strong pricing and rebounding housing market are benefiting the industry.

Martin Marietta has a vast network of aggregate quarries and distribution centers throughout the southern United States, in the Bahamas and Canada, as well as distribution centers along the Gulf of Mexico and Atlantic coasts. In North Carolina, the company booked 10 million tons of aggregates on six large NCDOT projects in first-quarter 2020. Of these, 9.4 million is expected to be shipped in 2020 and 2021.

The Aggregates business, which accounts for more than 63% of total products and services revenues, has been improving on the back of higher shipments, pricing improvement and benefits from growth initiatives. It expects the outlook for public infrastructure, particularly for aggregates intensive street/highway work, to be more resilient during these uncertain times.

Importantly, Trump’s impetus to spur massive infrastructure investments in roads, highways, ports and airports bodes well for aggregate producers like Martin Marietta. In addition to these factors, it banks on acquisitions. The company completed more than 90 smaller acquisitions from the Initial Public Offering in 1994 till 2019 to enhance and expand presence in the building materials marketplace.

However, the company is plagued with the shortage of skilled laborers, rising wage costs and increasing material expenses, along with supply-related woes and fluctuation in the prices of electricity, diesel fuel, liquid asphalt and other petroleum-based resources. Its shares have declined 24.1% so far this year compared with the industry’s 11.8% fall.

Although shares of this Zacks Rank #3 (Hold) company have underperformed the industry in the year-to-date period, the recent move is likely to boost investors’ sentiments in the near future. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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