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KB Home Hikes Dividend 67% Backed By Strong Cash Flows
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KB Home Hikes Dividend 67% Backed By Strong Cash Flows

KB Home has announced a 67% hike in its quarterly dividend per share to $0.15 from $0.09. The new dividend rate will be payable on Nov. 26 to shareholders of record as on Nov. 12. KB Home shares advanced 1.1% in after-market trading following the news.

With this dividend hike, KB Home’s (KBH) annual dividend per share will increase to $0.60 compared to $0.36 in 2019, reflecting a dividend yield of 1.5%. Last year, the homebuilder raised its annual dividend per share to $0.36 from $0.10.

The company’s CEO Jeffrey Mezger commented, “As we have become a larger and more profitable company, generating significantly higher operating cash flow, our Board approved a meaningful increase in our cash dividend for the second consecutive year.”

“With the momentum in housing market demand driving robust year-over-year net order expansion—in both our 2020 third quarter, as well as in the first five weeks of our fourth quarter, during which time our net orders have increased 39% relative to the comparable prior-year period—we believe we are well positioned to deliver higher revenues and drive significant improvement in our return on equity in 2021,” added Mezger.    

In September, KB Home announced better-than-anticipated fiscal 3Q results citing strengthening housing market conditions driven by historically low mortgage interest rates and a limited supply of resale inventory. The 3Q EPS increased 14% to $0.83 despite a 14% decline in revenue as the company brought down its overhead costs and reduced its workforce.

On Thursday, JPMorgan analyst Michael Rehaut increased the price target for KB Home to $44 from $39 but maintained a Sell rating. In a research note to investors, the analyst stated that despite the sector rising 38% year-to-date led by an “impressive” rebound in demand following the early days of the COVID-19 pandemic, homebuilders have a “solid amount of additional upside potential left in the tank over the next 15 months.”

The analyst noted that single-family housing starts are currently only approaching their long-term average after an “unprecedented” 13 years of being below 1 million. He expects “solid growth” over the next two years driven by low interest rates, a recovering job market, improving consumer confidence, tight supply and robust household formation. (See KBH stock analysis on TipRanks)

The Street has a cautiously optimistic Moderate Buy consensus for KB Home with 6 Buys, 5 Holds and 2 Sells. Shares have advanced about 17% year-to-date and the average analyst price target of $44 implies further upside potential of 10% in the stock over the coming months.

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