Covidien plc (COV), a leading healthcare products maker, recently enhanced shareholder returns by raising its quarterly dividend by 11% to 20 cents a share from 18 cents. The revised quarterly dividend is payable on Nov 8, 2010, to shareholders of record as on Oct 4, 2010.
 
This represents the Ireland-based company’s second dividend hike over the past 12 months. Covidien’s previous dividend increase was in September 2009, when it raised the quarterly payout by 12.5% to 18 cents a share from 16 cents. Subsequently, its Board of Directors had authorized the repurchase of shares worth up to $1 billion in March 2010.
 
The dividend increase underscores Covidien’s commitment to deliver incremental returns to investors leveraging a solid free cash flow and strong earnings power. The company continues to maintain a positive earnings surprise streak having beaten the Zacks Consensus Estimate in each of the last four quarters. Covidien plans to return 25%-40% of its free cash flows in the form of dividend and share buybacks to shareholders annually.   
 
Covidien recently divulged its financial forecast for fiscal 2011. At an investor meet, the company stated that it envisions net sales for the year to budge up 6%-9% year over year. Covidien anticipates revenues from Medical Devices, its principal growth engine, to leap 10%-13% year over year. Moreover, free cash flows for fiscal 2011 have been forecast to exceed $1.6 billion.
 
However, Covidien expects weakness in its Pharmaceuticals segment to sustain in fiscal 2011 as it foresees sales from this division to clip 5% year over year. The division remains challenged by aggressive competition and pricing pressure which has contributed to erosion in Generic products sales.
 
Covidien boasts a well diversified product and technology portfolio. Its core medical devices business faces competition from Johnson & Johnson (JNJ), Becton Dickinson (BDX) and C.R. Bard (BCR). Covidien remains committed to rolling out new products and technologies, focusing on faster-growing products and markets, and boosting market share in core segments through investments in sales and marketing infrastructure.
 
The acquisition of Endovascular devices maker ev3 Inc in July 2010 has bolstered Covidien’s foothold in the peripheral vascular and neurovascular markets. The company recently divested its Specialty Chemicals and sleep therapy product line (includes continuous positive airway pressure and bi-level products). The divestitures enable Covidien to rationalize its product portfolio and reallocate resources to faster-growing, higher-margin businesses.

 
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