Specialty chemicals and advanced materials company Rockwood Holdings, Inc. (ROC) has taken a step towards returning cash to shareholders. The company recently announced that its Board of Directors has approved a policy, under which it will be paying a regular quarterly dividend. The amount of dividend will be decided by the Board from time to time.

In accordance with this newly adopted policy, Rockwood announced that it will be paying its first quarterly cash dividend of 35 cents a share on July 11, 2012, to common shareholders of record at the close of business as of June 26, 2012. This will result in an annualized dividend yield of 2.97% as per the stock’s closing price of $47.19 on June 12, 2012. The company plans to pay dividends in March, June, September and December.

The commencement of dividend comes as a welcome news for the shareholders of Rockwood, although not entirely unexpected if we take a look at its performance. The company has performed solidly over the past four quarters, beating the Zacks Consensus Estimate on earnings thrice while missing by a penny once, resulting in an average positive surprise of 14.13%.

Rockwood’s revenues have grown at a fast clip over the past two fiscal years, clocking a growth rate of 15.11% annually. Over the same period, the company has seen its free cash flow jump 18.25% annually. At the end of the recently reported first quarter (ending March 31, 2012), the company had cash and cash equivalents and accounts receivable worth $635.1 million on its balance sheet. Free cash flow stood at $119.9 million, up from $102.1 million as of March 31, 2011.

Moreover, Rockwood’s management follows a methodical strategy of using its cash. The company’s primary objective is to maintain its leverage at around 1.5 times the earnings before interest, taxes, depreciation and amortization (EBITDA), a target which it achieved in the first quarter. Then it shifts its attention towards pursuing growth objectives, both organically and inorganically.

The strategy seems to serve the company well, as it projects an upbeat performance for the rest of the year. It expects double-digit growth in its lithium business along with strong sales in the surface treatment business. In addition, the company recently announced that it has agreed to purchase the titanium dioxide production assets and inventory of crenox GmbH through its joint venture with Kemira Oyj, a move which is expected to further strengthen its titanium dioxide pigments business. These expansion plans, along with the others which Rockwood pursues, are expected to deliver greater value to investors in the long run.

Rockwood has been a robust performer historically and has a strong balance sheet. It is also focused on growing its business further through various measures. The initiation of a dividend with a forward dividend yield of 2.97% will further help it in establishing its supremacy over peer PolyOne Corporation (POL) which has a dividend yield of 1.50%.

Rockwood currently holds a Zacks #2 Rank, reflecting a short-term (1 to 3 months) Buy rating.

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