Leading distributor of dental, veterinarian and rehabilitation medical supplies Patterson Companies Inc. (PDCO) has raised its quarterly dividend to 12 cents a share from 10 cents, representing a 20% hike. This lifts the annual dividend to 48 cents per share from the current payout of 40 cents and equates to a dividend yield of roughly 1.5%. The revised quarterly dividend is payable on April 28, 2011, to shareholders of record as on April 11, 2011.
Separately, the Minnesota-based company’s Board has approved a new 25 million share repurchase authorization, representing another commitment to boost shareholder returns. This replaces the existing authorization, under which, roughly 4.5 million shares were available for buyback.
The repurchase can be executed in open market transactions through March 15, 2016. Patterson targets buying back shares worth $150 million under the new authorization over the next twelve months.
The move represents good news for Patterson’s investors, especially after the company’s tepid third-quarter fiscal 2011 results that missed the Zacks Consensus Estimates, hit by a softer than expected dental technology equipment business. Based on the third quarter results and outlook for the fourth quarter, Patterson pared down its earnings target for fiscal 2011.
Patterson provides a wide range of consumable supplies, equipment and software and value-added services to its customers. The company’s broad product range hedges it against any meaningful sales shortfall in a soft economy.
Patterson has been successful in growing revenues over the past few quarters driven by double-digit growth at its Rehabilitation Supply unit. The division benefits from the synergies arising from acquisitions. Patterson continues to invest in infrastructure to boost operational efficiencies. Moreover, the company is exploring lucrative acquisition deals to boost its market position and geographic reach.
Dental Supply, the largest contributor to Patterson’s revenues, is expected to benefit from the gradual recovery in the dental market and a rebound in dental equipment business. This is expected to support margin expansion and may better position the company to deliver positive earnings surprises moving forward.
However, Patterson faces significant competition in the dental market, especially from Henry Schein Inc (HSIC). The U.S. dental products distribution industry is highly competitive and consists principally of national, regional and local full-service and mail-order distributors. We also remain cautious about the company’s aggressive acquisition strategy to drive growth given the inherent integration risk. We are currently Neutral on Patterson.
HENRY SCHEIN IN (HSIC): Free Stock Analysis Report
PATTERSON COS (PDCO): Free Stock Analysis Report
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