Ecolab (ECA) Raises Dividend by 20% but Shares Decline - Analyst Blog

Provider of water, hygiene, and energy technologies, Ecolab Inc. (ECA), recently raised its quarterly dividend by 20% to 33 cents a share. This subsequently lifts the annual dividend to $1.32 per share from the current $1.10 and translates into a dividend yield of approximately 1.2%.  

The raised quarterly dividend is payable on Jan 15, 2015, to shareholders of record as of Dec 16. Ecolab's previous dividend increase was made in Dec 2013, when it raised the quarterly payout by 20% to 27.5 cents.

However, the news failed to cheer investors as Ecolab's share price declined 4.8% to close at $103.85 on Dec 8, 2014. We believe that the decline reflects growing investor concern over sluggish end-market demand for Ecolab products.  

Nevertheless, we believe that the dividend increase underscores Ecolab's commitment to deliver incremental returns to investors leveraging a solid balance sheet, healthy free cash flow and earnings. Apart from the consistent dividend payouts, the company is also returning cash to shareholders in the form of share buybacks.

At the end of third quarter, cash and cash equivalents were $197.8 million. In the nine months ended Sep 30, 2014, cash flow from operations increased to $1.15 billion compared with $929 million in the year-ago period.

Moreover, earnings growth is also expected to support shareholder friendly activities in the near term. In the third quarter of 2014, earnings per share (EPS) increased 16.3% from the year-ago quarter to $1.21 buoyed by robust sales growth.

For the fourth quarter, adjusted EPS is estimated to be in the range of $1.18 to $1.22 At mid-point, EPS is 15.4% higher than $1.04 reported in the year-ago quarter. For 2014, adjusted EPS is likely to figure in the range of $4.16 to $4.20. At mid-point, EPS is 18.1% higher than $3.54 reported in 2013.

However, we are not overtly impressed with Ecolab at this point. The unfavorable end-market trends along with internal issues may pose challenges in the near term. Moreover, stiff competition from the likes of ServiceMaster (SERV), Flexible Solutions International (FSI) and Rockwood Holdings (ROC) is a major headwind.

Currently, Ecolab carries a Zacks Rank #3 (Hold).

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