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Domtar is splitting its stock and increasing the quarterly dividend 36 per cent

The Canadian Press

MONTREAL - Pulp and paper producer Domtar announced a two-for-one stock split and a 36 per cent dividend increase Wednesday as it anticipates enhanced earnings growth potential following the acquisition of diaper maker Indas.

The Montreal-based company will double its share count as of mid-June and raise the post-split quarterly dividend by 10 cents per share to 37.5 cents US. The dividend will be paid July 15 to shareholders of record as of July 2.

"The board's decision to substantially increase the regular dividend payout reflects its confidence in our future as we continue to transform Domtar into a growth company," said president and CEO John Williams.

He said the stock split and new dividend policy will enable the company to maintain a share price that is attractive to a broad range of investors.

Following its annual meeting, Williams said he won't close the door on acquisitions in Central and South America to complement its strategy of seeking new growth opportunities in Europe for its personal care business.

Domtar (TSX:UFS) needs more acquisitions to achieve its goal of generating at least US$300 million in pre-tax operating earnings (EBITDA) from the segment within a few years.

While there are growth opportunities in Asia, he said the company has no immediate plans to pursue deals in that region, preferring to stick to markets in Europe and the Americas where it understands the risks.

Following the acquisition of Spain's Laboratorios Indas last fall for about $563 million, Domtar employs about 2,000 workers in the personal care sector that makes incontinence products for both babies and adults.

The company is investing in new equipment in a segment, whose revenues grew by 42 per cent last year and represent 10.5 per cent of Domtar's total sales, up from 7.2 per cent in 2012.

Leon Aghazarian of National Bank Financial said he didn't expect such a large dividend increase.

"While a dividend increase was not a surprise in itself, its magnitude is," he wrote in a report, noting that the annualized dividend will increase to $3 from $2.20 per share on pre-stock split basis. "This is three times the amount of 2010 as Domtar has consistently rewarded shareholders with dividend increases in the past four years."

On the Toronto Stock Exchange, Domtar's shares closed at C$102.31, up $1.93 or nearly two per cent in Wednesday trading.