Avery Dennison Corp (AVY) has taken a mature-company approach to capital allocation, focusing on managing the cash flow for its portfolio of office products and returning capital to shareholders in the form of dividends and share buybacks, says Vincent Sellecchia, Managing Director and Portfolio Manager at Tocqueville Asset Management L.P.
“We have known Avery for a while because they bought one of our companies a number of years ago called Paxar. Avery manufactures pressure-sensitive and self-adhesive materials labeling. They also make the retail branding and information tags and labels that you might find on apparel if you go to a department store,” Sellecchia said.
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Sellecchia says AVY‘s approach to capital allocation has resulted in positive investor response. He says the company chose this approach after M&A deals were blocked by the Department of Justice, in an industry that seems fairly mature.
“It was becoming clear that management realized they were not a growth company, but rather a mature collection of businesses that generated very good cash flow. Given the change in perspective, they decided to take the cash flow and give it back to the shareholders in the form of share repurchases and higher dividends, rather than make acquisitions or put it into a large growth capital program. The stock has performed very nicely over the last 18 months or so,” Sellecchia said.
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