Goodyear Tire Boosts Dividend, Stock Buyback; To Build New Plant

Tire manufacturer Goodyear Tire & Rubber Co. (GT) on Thursday announced an update to its 2014-2016 capital allocation plan, saying that it plans to boost the quarterly cash dividend on its common stock by 20 percent, increase its share repurchase program by $350 million and allocate an additional $450 million towards debt reduction.

The Akron, Ohio-based company also plans to invest about $500 million to build a new consumer tire plant in the Americas to serve its North American and Latin American consumer tire businesses. The new plant will have an initial capacity of about six million tires per year, that can be increased as demand increases.

Goodyear noted that site selection was underway to identify the best location for the plant to support North America and Latin America customers. The company expects tire production to begin in the first half of 2017.

Goodyear said that its 2014-2016 capital allocation plan is focused on increasing shareholder returns and capturing high-return growth opportunities in North America and Latin America. Citing its strong 2013 free cash flow that enabled the full funding of its hourly U.S. pension plans in early 2014, the company said it is reallocating about $1.1 billion of its 2014-2016 cash flow.

The updated capital allocation plan aims to increase shareholder value by providing about $650 million in returns to investors.

This includes the allocation of an additional $300 million to growth capital expenditures to enable the company to build a new plant and increasing the quarterly cash dividend on Goodyear's common stock by 20 percent to $0.06 per share from $0.05 per share beginning in September. The payout represents an annual rate of $0.22 per share for 2014 and $0.24 per share for 2015.

Goodyear plans to increase the share repurchase program by $350 million to allow it to acquire up to $450 million of its stock through 2016. Further, based on company performance, the shareholder return program can be increased up to an additional $250 million to a total of $900 million. The company will also allocate an additional $400 million towards debt reduction.

Richard Kramer, chairman and chief executive officer of Goodyear said, "This updated capital allocation plan for 2014-2016 reflects Goodyear's commitment to balancing all our priorities - returning cash to shareholders, investing in high-return growth projects and achieving investment grade metrics - to drive long-term shareholder value consistent with our articulated strategy."

Goodyear also reaffirmed its financial targets for the period from 2014 to 2016, including segment operating income growth of between 10 percent and 15 percent per year, and annual positive free cash flow from operations. Additionally, the company affirmed its outlook for a 2 percent to 3 percent increase in unit volumes for 2014 over 2013.

GT is currently trading at $25.57, down $0.59 or 2.26 percent on a volume of 1.48 million shares.

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