Lincoln Electric Holdings Inc. (LECO) announced that its Board of Directors approved a 3.7% increase in cash dividend. The company’s quarterly dividend increased to 28 cents per share from 27 cents per share. The new dividend is $1.12 per share on an annualized basis.
 
The company’s strong balance sheet and its ability to generate healthy cash flow allow it to increase shareholder value through higher dividends. As on Sept 30, 2009, Lincoln Electric had $406 million in cash and cash equivalents and $130.7 million in short-term and long-term debt. The debt-to-capitalization ratio stood at 11.0%.
 
The company’s business model throws off substantial amounts of free cash flow. Lincoln Electric generated operating cash flow of $231.3 million and free cash flow of $215 million in the first nine months of 2009.
 
Apart from increasing dividends, Lincoln Electric uses its financial strength to expand its business. The company continues to invest in acquisitions to expand its manufacturing capabilities, broaden its distribution networks, and access growth markets.
 
During the third quarter, Lincoln Electric completed the acquisition of Jinzhou Jin Tai Welding and Metal Co., Ltd. This acquisition, which increased the company’s customer base and added significant cost-competitive consumable solid wire manufacturing capacity in China, is expected to be accretive to earnings by approximately 8 cents to 12 cents per share in the first year.
 
The company’s solid balance sheet and healthy cash flow provide it the financial flexibility to re-invest in its business, acquire smaller competitors, and pay higher dividends.
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