American pulp and paper company International Paper Company (IP) announced that its Board of Directors has increased the company’s share buyback program by $2 billion. This brings the total authorized share buyback to $3.3 billion, including the $1.3 billion remaining from the previous repurchase program. Shares closed flat at $55.74 on October 12.
The company also mentioned that its Board has slashed its quarterly cash common dividend by 9.8% from $0.5125 to $0.4625 per share. The $0.05 per share reduction implies an annualized common share dividend of $1.85 per share, reflecting a dividend yield of 3.3%.
IP’s Board also announced a $1.00 per share regular dividend on the company’s cumulative $4.00 preferred stock. Both dividends will be payable on December 15 to shareholders of record on November 15. (See Insiders’ Hot Stocks on TipRanks)
Reaffirming the company’s long-term outlook and strong free cash flow generation, Mark Sutton, Chairman and CEO of IP, said, “We are committed to a competitive and sustainable dividend of 40 to 50% of free cash flow. The dividend adjustment we are making is consistent with our dividend policy and is well below the 15 to 20% adjustment we anticipated when we announced the spin-off of our printing papers business late last year. Additionally, share repurchases will continue to complement dividends with a consistent and thoughtful cadence that’s underpinned by a commitment to maximize value creation.”
Following the announcement, KeyBanc analyst Adam Josephson said, “We think the stock could initially react favorably to this headline, though we believe the Company’s earnings performance (less than-stellar in the past three quarters) and where we are in the containerboard and pulp cycles (we think both have peaked, with pulp already headed downward and containerboard to follow next year) are of far greater consequence than ~$80 million of higher annual dividend payments and a larger share repurchase authorization.”
The analyst noted that even with the dividend cut, IP’s dividend yield remains higher than its sector peers, and the dividend cut is much lower than the expected 15% – 20% reduction following the spin-off of its printing papers division in December.
Overall, the stock has a Hold consensus rating based on 2 Buys, 2 Holds, and 2 Sells. The average International Paper price target of $64.33 implies 15.4% upside potential to current levels. Shares have gained 33.8% over the past year.