Quaker Chemical Corp. $17 – New York symbol KWR

QUAKER CHEMICAL CORP. $17 (New York symbol KWR; Income Portfolio, Manufacturing & Industry sector; Shares outstanding: 10.6 million; Market cap: $180.2 million; WSSF Rating: Average) makes lubricants and specialty chemicals that protect industrial machinery from corrosion. The company recently raised its quarterly dividend for the first time since 2004, from $0.215 a share to $0.23. The new annual rate of $0.92 yields 5.4%. Quaker uses oil to make its products, so it gains from the recent drop in prices. However, the company’s prominent share of the narrow market it operates in makes it easier for it to pass along higher raw material costs to its customers. That should also help Quaker maintain the current dividend rate. In the three months ended June 30, 2008, revenue rose 15.0%, to a record $158.2 million from $137.6 million a year earlier. That’s partly due to a 5% price increase. Overseas markets supply over 50% of Quaker’s total revenue, so it also benefited from a weaker U.S. dollar. Earnings per share rose 29.3%, to $0.53 from $0.41. However, the latest quarterly earnings excluded a special charge of $0.12 a share related to the hiring of a new chief executive officer. Quaker expects this transition will result in further charges totaling $0.25 a share over the next three years. Quaker’s long-term debt of $87.4 million is a high 49% of its market cap. However, that’s reasonable in light of its market share and rising overseas sales. It also holds cash of $22.2 million or $2.09 a share. Quaker will probably earn $1.82 a share in 2008, and the stock trades at 9.3 times that estimate. It’s also attractive at just 0.3 times its sales of $57.40 a share. Quaker Chemical is a buy.

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