There is good news for Thermo Fisher Scientific‘s (TMO) shareholders as the Board has approved the initiation of a quarterly cash dividend. This move is based on the company’s adopted strategy of effective capital deployment that strives to create shareholder value. This proves the company’s confidence to return value to investors through dividend payments besides pursuing opportunities that generate long-term growth.
The Waltham, Massachusetts based company will pay the initial quarterly dividend of 13 cents a share on April 16, 2012, to shareholders of record as on March 15, 2012. On an annualized basis, this equates to a payout of 52 cents, translating into a dividend yield of roughly 0.9% based on the closing price on February 29.
Thermo Fisher posted better-than-expected fourth-quarter fiscal 2011 results amidst a challenging backdrop in the government and academic end markets. The company’s revenues and earnings were ahead of the Zacks Consensus Estimates, backed by strong growth for instruments serving industrial and applied markets and at the Clinical Diagnostics business besides strong margin trends and sturdy performance in the emerging markets.
Effective capital deployment has been one of the key contributors toward EPS growth. Thermo Fisher repurchased 7 million shares for $350 million during the most recent quarter (24.5 million shares for $1.3 billion during 2011) and was left with $650 million of authorization through November 2012. As a result of this continuous buyback program the outstanding share count at the end of the quarter stood at $376 million, down 5.7% from the year-ago period, thus boosting the bottom line. Based on a strong cash balance, the company has been strengthening its portfolio banking on suitable acquisitions, the largest being Dionex and Phadia.
However, the company is up against increasing headwinds in the government and academic markets. The situation in Europe might put academic budgets under the scanner in most European nations. Players in this niche like Life Technologies (LIFE) and Illumina (ILMN) among others are facing a similar crisis. The company, however, believes that the end markets would be consistent with 2011 levels. We expect growth to moderate if the economic situation worsens.
We have a Neutral recommendation on Thermo Fisher. The stock retains a Zacks #3 Rank (Hold) in the short term.
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