Domtar Corporation Boosts Quarterly Dividend nearly 5% (UFS)

Domtar Corporation (NYSE: UFS), with its latest 4.8% quarterly dividend boost, now has a track record of eight consecutive years of annual dividend hikes.

Even though the company’s share price has risen 15-20% over the past year, the yield is still quite attractive at just under 4% and significantly outperforms the average yield of Domtar’s peers in the Consumer Goods sector, as well as the company’s close competitors in the Paper & Paper Products market segment. The average annual dividend hike for UFS over the past eight years has increased by double-digit percentages.

Domtar Corporation will distribute its next dividend payout on April 16, 2018 to all its shareholders of record prior to the March 29, 2018 ex-dividend date.

Domtar Corporation (NYSE:UFS)

Currently headquartered in Montreal, Canada, the Domtar Corporation traces its origins all the way back to the 1848 founding of Boulton Holdings Ltd. in England. In 2006, the company merged with a fine paper business spun off from Weyerhaeuser (NYSE:WY) under the name of Domtar. This merged company currently designs, manufactures, markets and distributes communication paper, specialty and packaging paper, and absorbent hygiene through two business segments — Pulp and Paper, and Personal Care. Domtar provides copy and electronic imaging paper, as well as computer paper, pre-printed forms and digital paper for office and home use. Additionally, the company offers paper for thermal printing, flexible packaging, food packaging, medical gowns, sandpaper backing, carbonless printing, labels, laminating applications and more. Domtar currently employs a workforce of more than 10,000 employees, which are dispersed across the company’s operations in more than 50 countries.

Domtar’s upcoming quarterly dividend payout of $0.435 per share is 4.8% higher than the $0.415 distribution in the same quarter a year earlier. This current quarterly payout is equivalent to a $1.74 annualized payout for 2018 and a 3.9% dividend yield at current prices, which is more than 10% higher than the company’s own average yield over the past five years.

Compared to the average yield of all the companies in the Consumer Goods sector, Domtar’s current yield is about 120% higher. Also, the company’s current yield beats the 2.33% simple average yield of the entire Paper & Paper Products market segment by almost 70%. If one disregards the companies in this segment that do not pay dividends, the average yield goes up to 3.18%. However, Domtar’s yield is still higher by 22%.

Over the past eight years, UFS’s annual dividend amount has grown at an average rate of 17% per year. Since 2011, the first year of annual dividend hikes, Domtar’s total annual dividend amount has advanced almost 190% from the $0.60 per share annualized amount paid that year to the current $1.74 annualized distribution for 2018.

As for share price action, Domtar’s share price traded mostly sideways during the first five months of the trailing 12-month (TTM) period. This period included a 6% drop in the first few weeks, which resulted in the share price’s 52-week low of $35.47 on April 3, 2017. However, after the initial five months of the TTM, the share price took off and ascended more than 48% to reach a 52-week high of $52.58 on January 30, 2018 — the highest level in nearly five years.

Unfortunately, the early February market sell-off affected the Domtar stock negatively. The share price lost almost 19% in just seven trading days. After this sharp drop, though, the share price resumed its rising trend at a seemingly identical rate as before the drop.

Chart Source: Yahoo Finance

As of March 19, 2018, UFS shares had rebounded about 5% from the low on Feb. 14 and closed at $44.54 on that day. While this is still more than 15% below the late January peak, this closing price was 16% higher than it was one year earlier without counting dividends. If you factor in the annual dividend paid during that time, investors in UFS saw a 21% total return over one year.  The current share price is also 25% higher than the April 2017 low.

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