Baxter International’s (BAX) board of directors recently increased the company’s quarterly dividend from 29 cents a common share to 31 cents a share, an increase of about 7%. The company will pay the dividend on January 5, 2011, to shareholders of record at the close of business on December 10, 2010.
The latest hike in dividend is part of Baxter’s endeavor to convert its strong cash flow into shareholder wealth in the form of dividends and share repurchases. During the course of fiscal 2010, Baxter returned about $2 billion to its shareholders, consisting of dividends of $688 million as well as share repurchase of about $1.3 billion, comprising approximately 26 million shares.
The company believes that its strategy for capital allocation, with concurrent ability to generate sizeable cash flow, endows it with the capability to both invest for the future as well as return significant value to its shareholders.
Deerfield, Illinois-based Baxter International is a global medical products and services company with expertise in medical devices, pharmaceuticals, and biotechnology. Baxter presently operates through three business segments: BioScience, Medication Delivery and Renal.
The news regarding Baxter remains mixed. On the positive side, Baxter’s focus on life-sustaining products, which are not commoditized, partly insulates it from an economic downturn. The company is able to generate recurring revenues, and consistent cash flow, due to its focus on chronic diseases. Further, Baxter retains a strong product pipeline.
On the flip side, despite recent improvement in Plasma Proteins and Antibody Therapy, we are concerned about stagnation in sales, a somber outlook for hospital spending, and tightening of reimbursement.
The lingering bearishness surrounding the stock can be lifted by consistent execution. Baxter is a good bet for value investors willing to wait as fundamentals improve. We currently have a Neutral long-term rating on Baxter, which is supported by a short-term Zacks #3 Rank (Hold).
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