Why Argan Stock Climbed Higher on Wednesday

Key Points

• The company impressed shareholders with a generous increase in its quarterly dividend.

• Investors of record as of Oct. 23 will be eligible to receive it.

• 10 stocks we like better than Argan ›

There are few things income investors like more than a meaty dividend raise. Argan (NYSE: AGX) declared one on Wednesday, and the market rewarded the construction company with a nearly 4% bump in its share price. That was significantly better than the 0.3% increase posted by the benchmark S&P 500 index.

A healthy boost

Most dividend raises are cautious, representing only incremental improvements over their predecessors. This sure isn't the case with Argan's latest hike. The company is increasing it by 33%, or more than $0.12 per share, to $0.50. The new dividend would yield just under 1% on Argan's most recent closing stock price. It is to be paid on Oct. 31 to shareholders of record as of Oct. 23.

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This dividend raise is Argan's third in as many years. The company is thriving, and wants to reflect this in the payout.

In its press release about the dividend, the company quoted CEO David Watson as saying that "The ongoing electrification of everything requires an uninterrupted supply of reliable, high-quality energy, and we believe we are well-positioned with our diverse capabilities, proven track record and long-standing customer base, to benefit from the current demand environment as the industry responds to the urgent need for reliable energy resources to strengthen the power grid."

Second quarter not as prosperous as it looked

Argan's second-quarter earnings, published last week, have clearly filled management with enthusiasm. For the period, revenue and, especially, GAAP net income grew on a year-over-year basis, and the company notched a very convincing beat on the bottom line. However, analysts tracking the stock had expected a higher top-line figure, while profitability was impacted by events that appear to be one-off occurrences.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.