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Special Dividend Opportunity – $22 per share with 14% Dividend Yield

TransDigm Group (TDG) announced that its board of directors has authorized and declared a special cash dividend of $22.00 on each outstanding share of common stock and cash dividend equivalent payments under certain of its stock option plans.  The record date for the special dividend is July 15, 2013, and the payment date for the dividend is July 25, 2013.

TDG is trading at $158 per share following the special dividend.  Shares are up 18% in the past year and 7% in the past month.  The stock has a neutral rating according to its equity summary score of 5.9 out of 10.

W. Nicholas Howley, TransDigm Group’s Chairman and Chief Executive Officer, stated, “This special dividend is part of our ongoing efforts to allocate our capital in order to create value for our shareholders.  We believe the market conditions and other factors gave us a unique opportunity to accelerate returns to our shareholders by this special dividend.  The combination of a cash balance anticipated to be over $450 million at September 30, 2013; an available revolver of approximately $300 million; additional capacity under our amended credit agreement; and expected strong quarterly cash generation in fiscal 2013 and fiscal 2014, give us adequate financial capacity to meet our likely range of operating and acquisition needs.”

TransDigm Group Incorporated recently announced that it acquired the assets of GE Aviation’s Electromechanical Actuation Division for approximately $150 million in cash on June 28, 2013.  The business, which will be conducted by TransDigm through a new entity, Whippany Actuation Systems, LLC (Whippany), located in Whippany, New Jersey, manufactures proprietary, highly engineered aerospace electromechanical motion control subsystems for civil and military applications. Product offerings include control electronics, motors, high power mechanical transmissions and actuators.  Whippany’s revenues are estimated to be approximately $80 million.

TransDigm Group, is a leading global designer, producer and supplier of highly engineered aircraft components for use on nearly all commercial and military aircraft in service today. Major product offerings, substantially all of which are ultimately provided to end-users in the aerospace industry, include mechanical/electro-mechanical actuators and controls, ignition systems and engine technology, specialized pumps and valves, power conditioning devices, specialized AC/DC electric motors and generators, NiCad batteries and chargers, engineered latching and locking devices, rods and locking devices, engineered connectors and elastomers, cockpit security components and systems, specialized cockpit displays, aircraft audio systems, specialized lavatory components, seatbelts and safety restraints, engineered interior surfaces and lighting and control technology.

A Solid Company offering a 9% Special Dividend

TransDigm Group Incorporated (TDG) declared a special cash dividend of $12.85on each outstanding share of common stock and cash dividend equivalent payments under certain of its stock option plans. The record date for the special dividend is October 25, 2012, and the payment date for the dividend is November 5, 2012.

TDG is currently trading at $148.70 so the special dividend is an 8.64% dividend yield.  TransDigm Group does not pay a regular dividend.

TransDigm Group is a leading global designer, producer and supplier of highly engineered aircraft components for use on nearly all commercial and military aircraft in service today.  The Company is up 72% in the last year and has exceeded analysts’ earnings estimates the past 6 quarters.  EPS has increased 116% in the past year compared to the same period one year earlier.

The improved results were aided by acquisitions of Schneller, Harco and AmSafe, which increased the company’s backlog.  Commercial OEM (original equipment manufacturer) markets were major benefactors. TransDigm raised its guidance driven by the good performance in the first half of the year.  The company’s strong free cash flow and well planned capital structure creates shareholder value

W. Nicholas Howley, TransDigm Group’s Chairman and Chief Executive Officer – “With approximately $440 million of cash as of September 30, 2012, an available revolver of approximately $300 million and our strong ongoing cash generation, we feel we have adequate capital to meet our likely acquisition needs.  Additionally, given current capital market conditions, we believe we have access to significant additional capital if an attractive larger opportunity becomes available.”

Zacks Investment Research has an OUTPERFORM rating with a 12-month price target of $166.

Companies Likely To Pay Special Dividends

Goldman Sachs has identified 15 companies as likely candidates to declare special dividends before tax hikes go into effect at the start of 2013.

The list includes MasterCard Inc. (MA), Wynn Resorts Ltd. (WYNN), and Stryker Corp. (SYK).

“A well capitalized corporate America, flush with cash, and a potential shift, regardless of party, in the tax rate higher in 2013 augur a wave of special dividend announcements, in our view,” said analysts at Goldman Sachs in a report.

Goldman noted that gross cash among non-financial firms has risen 55% since the end of 2007 and total cash to enterprise value has increased to 9% from 6% during the same period.

The scheduled expiration of tax cuts at the end of the year, part of the so-called fiscal cliff, means that dividends are likely to be taxed as ordinary income in 2013 at a rate of up to 43.4% versus 15% currently, according to the analysts.

“The 2001/2003 tax cuts were originally set to expire at the end of 2010, though, after months of political negotiations, the rates were extended in the final weeks of that year.  Indeed 2010, saw the highest number of one-time dividend announcements, more than double the run-rate of 2000-2011 period,” they said.

In the last 12 years, 75% of companies that declared a special dividend outperformed the S&P 500 in the two days following. “The average outperformance over the two days and the 3 months following the announcement was 330 basis points and 380 basis points, respectively,” said the analysts.

They also noted that historically, announcements for special dividends tend to be concentrated in the fourth quarter.

Companies flush with cash are also increasing their ordinary dividends. In the past week, 8 members of the S&P 500 have raised their dividends. In the S&P 500 as a whole, 403 companies are currently paying dividends, the highest number since November 1999, according to Howard Silverblatt, S&P senior index analyst.

The complete Goldman Sachs special dividends candidate list:

Federated Investors Inc. (FII)

Franklin Resources Inc. (BEN)

General Dynamics Corp. (GD)

Interval Leisure Group Inc. (IILG)

Las Vegas Sands Corp. (LVS)

Mastercard Inc. (MA)

Molex Inc. (MOLX)

Och-Ziff Capital Management Group (OZM)

Patterson Companies Inc. (PDCO)

Pzena Investment Management Inc. (PZN)

Stryker Corp. (SYK)

TransDigm Group Inc. (TDG)

Western Refining Inc. (WNR)

Williams-Sonoma Inc. (WSM)

Wynn Resorts Ltd. (WYNN)


Source: MarketWatch.

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