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Carnival (CCL) Enhances Shareholder Returns, Hikes Dividend

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Shares of Carnival Corporation (CCL - Free Report) increased 1% yesterday despite the Dow Jones, the S&P 500 and Nasdaq’s respective decline of 0.9%, 0.6% and 0.4%. This upside follows the company’s addition of shareholder value with a dividend hike. Carnival also approved the share repurchase program by another $1 billion.

Notably, the cruise operator increased quarterly dividend by 11% to 50 cents per share. This is the fourth dividend hike since 2015. The increased dividend will be paid on Jun 15, 2018 to shareholders on record as of May 25. Prior to this, the company had been paying a quarterly dividend of 45 cents. The new payout amounts to an annual dividend of $2 per share and represents a yield of 3.1%. In November 2017, this Miami, FL-based company had increased its dividend by 12.5%.

In fact, dividend hikes not only enhance shareholder returns but also raise the market value of the stock. Therefore, companies often tend to attract new investors and retain the old ones through this strategy.

In case of Carnival, we believe that strong balance sheet and cash flows provide the company with financial flexibility to offer dividend hikes. It expects to generate $6 billion of cash from operations in 2018.

Carnival exited the first quarter with cash and cash equivalents of approximately $453 million, up from $395 million in the prior quarter. Cash from operations was around $1.06 billion.

Stock Performance

Shares of the Zacks Rank #3 (Hold) company have increased 10.7% in a year’s time, outperforming the industry’s gain of 8.2%.

Moreover, Carnival continues to introduce new flagships to form additional demand creation opportunities. In June 2017, the company’s Germany-based AIDA Cruises brand had launched AIDAperla — one of the world's most environmentally friendly and technologically advanced ships. Again, in March, it launched Majestic Princess from Princess Cruises, which is the world's first cruise ship built specifically for the Chinese market.

Of late, the company also declared that it will launch four new cruise ships in 2018 as part of its current fleet enhancement strategy. While Carnival Horizon (belonging to Carnival Cruise Line brand) and Seabourn Ovation (Seabourn) will be launched in mid-2018, AIDAnova (AIDA Cruises) and ms Nieuw Statendam (Holland America Line) are slated for a December launch. Currently, Carnival has 18 new ships listed to be included in its portfolio of leading global cruise brands between 2018 and 2022.

Key Picks

A few better-ranked stocks in the same space are Royal Caribbean (RCL - Free Report) , RCI Hospitality Holdings (RICK - Free Report) and Marcus Corporation (MCS - Free Report) . All these stock carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Royal Caribbean has reported better-than-expected earnings in the trailing four quarters, with an average beat of 5.9%.

Shares of RCI Hospitality have gained 67.2% in a year.

Marcus has an impressive long-term earnings growth rate of 15%.

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