Lincoln Electric Hikes Dividend - Analyst Blog

Lincoln Electric Holdings Inc. (LECO) maintained its annual trend of dividend hikes, exemplified by the past 16 years, increasing its quarterly dividend by 3 cents to 31 cents. This translates to a 10.7% increase from the prior dividend of 28 cents. Lincoln Electric''s shares upped 1.1% to $63.30 on the news.

The increased dividend will be paid on January 14, 2011, to stockholders of record on December 31, 2010. The last increase had been declared exactly a year back in December 2009, which marked a 3.7% increment for the dividend level to reach 28 cents. In the span of 1995 to 2010, Lincoln Electric's current dividend has increased six-fold from 5 cents in 1995.

Lincoln Electric's nearest peer, Illinois Tool Works Inc. (ITW), had upped its dividend by 10% to 34 cents in August 2010, after a gap of two years. Lincoln Electric's dividend payout ratio of 42% surpasses Illinois Tool Works' 39%.  However, Lincoln Electric's cash position as of September 30, 2010, of $382.5 million was lower than Illinois Tool Works' $1,649 million. Lincoln Electric, however, enjoys a lower debt-to-capital ratio of 8% compared with Illinois Tool Works' 28%. We believe this puts Lincoln Electric in an advantageous position enabling it to focus on growth opportunities and increasing shareholder value, rather then on paying back debt.

Lincoln Electric's third quarter performance was impressive too. The company delivered adjusted earnings per share (EPS) of 79 cents, 25% above the year-ago quarter's EPS of 63 cents. During the quarter, the company managed to deliver robust sales and operating profit growth despite weak results throughout Europe.

Lincoln Electric is pursuing a multi-year strategy to become more cost competitive by building manufacturing facilities in Eastern Europe, India, China and South East Asia. The company is resorting to acquisitions to expand its manufacturing capabilities, broaden its distribution networks and access growth markets.

Also, Lincoln Electric is implementing various cost-control measures. Further, demand for its products is on the rise, leading us to believe that the company will post strong growth on the heels of an economic recovery and investments in the emerging markets. We currently have a Zacks #3 Rank (short-term Hold recommendation) on the stock.

Cleveland, Ohio-based Lincoln Electric deigns, develops and manufactures arc welding products, robotic arc-welding systems, plasma and oxyfuel cutting equipment and commands a leading position in the brazing and soldering alloys market.

 
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