Buffett-Backed USG Weighs Dividend Payments After 15-Year Hiatus

  • Wallboard maker suspended payouts amid rising asbestos costs
  • USG to repay debt with $670 million sale of distribution unit

Warren Buffett-backed USG Corp. is considering resuming dividend payments that have been suspended for 15 years in the wake of asbestos liabilities and the 2009 housing crash.

The company, best known for its Sheetrock wallboard brand, plans to repay debt with proceeds from a $670 million sale of its building-materials distribution business announced Monday, said Chief Executive Officer Jim Metcalf. That will free up cash to reinvest in the business and eventually return some to shareholders, he said. Buffett’s Berkshire Hathaway Inc. owns 30 percent of USG.

“We now have flexibility from a financial standpoint that we haven’t had for many, many years,” Metcalf said on a conference call with analysts. “We are looking at what our flexibility will be in the future of either dividends or stock repurchase.”

USG eliminated its dividend in 2001, citing significantly higher costs from asbestos litigation that tipped the company into bankruptcy. After a 2006 rights offering backstopped by Berkshire Hathaway helped pull the wallboard maker out of bankruptcy, it was hit by a housing implosion in which construction of new homes plummeted to 554,000 in 2009 from more than 2 million in 2005.

USG rose 9.2 percent to $30.63 at 11:11 a.m. in New York after announcing the distribution-business sale to ABC Supply Co. The shares earlier advanced 9.8 percent, the biggest intraday gain since February.

New Distribution

Before deciding whether to resume dividends or buy back shares, the company wants to ensure that selling its wallboard and ceiling tiles through ABC Supply goes smoothly, Metcalf said.

USG also plans to spend $300 million to increase automation at its factories, which should add $100 million to annual earnings before interest, taxes, depreciation and amortization. That will give the company even more cash to potentially return to shareholders.

“This is an inflection point,” Metcalf said. “We fixed our balance sheet. We’re going to reinvest back in the business.”

USG got a good price for the L&W distribution unit, which gives the company more options on using cash after years of paying down debt, said Kathryn Thompson, an analyst at Thompson Research Group. Investors would prefer to see the dividend renewed, she said by e-mail.

“We would expect that they would place greater focus on a regular dividend, as this attracts longer-term, value-focused investors,” Thompson said.

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