Alcoa (NYSE:AA) shares are on fire Friday, jumping as much as 14% as of 10:45 a.m. EDT and hitting 52-week highs of $55.89 a share. The aluminum stock stunned the market with its third-quarter numbers and announced some big shareholder rewards that sent the markets into a tizzy.
Given the recent developments in the aluminum industry, I have been upbeat about Alcoa's prospects for several weeks now and expected to see record quarterly numbers from the aluminum giant.
Alcoa didn't disappoint: It reported its highest-ever quarterly net income of $337 million for the third quarter, driven by 10% growth in revenue. Alcoa generated $3.1 billion in sales in the third quarter, thanks to higher alumina and aluminum prices. Alumina is used to produce aluminum, and Alcoa is the world's largest alumina producer.
Alcoa generated $352 million in free cash flow in Q3 and ended the quarter with a whopping $1.45 billion cash in hand. Alcoa judiciously paid down debt worth $500 million in September and brought down its long-term debt to a very manageable level of $1.7 billion.
That also means Alcoa doesn't have any substantial debt maturing before 2027, and its employee pension plan is well funded, too, which leaves the company with a lot of excess cash. So what does it decide to do with all that money? Reward shareholders.
Alcoa announced its first-ever quarterly dividend of $0.10 a share, to be paid on November 19. Management also announced a new share repurchase program worth $500 million over and above its ongoing repurchase program.
A combination of a dividend and share repurchases that effectively reduce the number of outstanding shares is the perfect recipe to boost stock prices.
Alcoa is a cyclical commodity stock, so a dividend is a milestone, as it means the company is confident it'll be able to pay out regular dividends even in a weaker metal-price environment. In CEO Roy Harvey's words, "Today, Alcoa is stronger and better poised for the future, and we plan to continue our positive momentum and consistently deliver value through the commodity cycle." Investors who held Alcoa shares with conviction through the recent nerve-wracking volatility in the metal markets must be a happy lot today.