Leading health care products maker Covidien plc (COV) recently lifted its quarterly dividend to 22.5 cents a share from 20 cents, representing a 12.5% growth. This raises the annual dividend to 90 cents per share from the current payout of 80 cents. The revised quarterly dividend is payable on November 4, 2011, to shareholders of record as on October 13, 2011.
The dividend increase underscores Covidien’s commitment to deliver incremental returns to investors leveraging a solid free cash flow and strong earnings. The company’s previous dividend increase was in September 2010, when it raised the quarterly payout by 11% to 20 cents a share from 18 cents.
Covidien continues to maintain a streak of positive earnings surprises having beaten the Zacks Consensus Estimate in each of the last four quarters. The company posted solid third-quarter fiscal 2011 results with both revenues and earnings outperforming the Zacks Consensus Estimates on the back of solid growth in its core Medical Devices business.
Covidien is enhancing shareholder value through dividends and share repurchases. The company’s Board, in August 2011, authorized a share buyback program allowing it to repurchase up to $2 billion of its ordinary shares, representing an encouraging prospect for earnings growth in fiscal 2012.
The company has returned more than $1 billion to its shareholders (in the form of dividend and share repurchase) over the past twelve months, representing over 50% of its free cash flows, well above its target of 25%–40%.
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 company continues to post positive revenue growth across its major operating segments, driven by the growing health care business and its increased focus on core businesses, backed by acquisitions.
Covidien is well placed to achieve its long-term revenue and earnings growth targets based on its attractive fundamentals, effective execution, new product cycle, synergies of acquisitions and expansion into emerging markets. However, the company is exposed to intense competition, reimbursement uncertainty and sustained pricing and procedure volume pressure. We are currently Neutral on the stock.
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