After only a week’s hiatus since its earnings release on March 2, Staples Inc. (SPLS) hit the market with the news of dividend increase. This reflects the intent of the global leader in the supply of office products to utilize its free cash to enhance shareholders’ return, thereby boosting investors’ confidence on the stock.
The Farmington, Massachusetts-based company, Staples, raised its quarterly dividend by 11%. A year earlier, the company had increased its dividend by 9%.
The company’s board approved a hike in annual dividend to 40 cents a share (or 10 cents quarterly) from 36 cents a share (or 9 cents quarterly). The increased dividend will be paid on April 14, 2011, to stockholders of record on March 25, 2011.
The increase in dividend reflects the company’s sound financial position and well-defined future prospects. Signs of recovery in the economy have made share buybacks and dividend increases a common factor among companies sitting on ample cash. Apart from enhancing shareholders’ return, such a strategy lifts the market value of the stock.
Staples recently posted fourth-quarter 2010 results. The quarterly earnings of 39 cents a share missed the Zacks Consensus Estimate of 41 cents but rose 2.6% from 38 cents earned in the prior-year quarter. The company reported total sales of $6,415.4 million, up a marginal 0.1% from the prior-year quarter, but short of the Zacks Consensus Estimate of $6,488 million.
Management now forecasts earnings per share in the range of 30 cents to 32 cents for first-quarter 2011 and between $1.50 and $1.60 for full fiscal 2011. Staples, which competes with Office Depot Inc. (ODP) and OfficeMax Inc. (OMX), expects sales to rise in the low single digits in the first quarter and to increase in the low to mid single digits in fiscal 2011.
Staples generated free cash flows of $1 billion and incurred capital expenditures of $409 million in fiscal 2010. The company ended the year with cash and cash equivalents of $1,461.3 million. The company also repurchased 18 million shares, aggregating $367.4 million and paid cash dividend of $259 million during the year.
Currently, we have a long-term “Neutral” rating on Staples. The company holds a Zacks #4 Rank, which translates into a short-term ‘Sell’ recommendation.
OFFICE DEPOT (ODP): Free Stock Analysis Report
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STAPLES INC (SPLS): Free Stock Analysis Report
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