The Board of Directors for Torchmark Corp. (TMK) authorized a 7% increase in quarterly dividend. Torchmark will now pay a quarterly dividend of 16 cents per share, up from 15 cents per share, paid on July 30, 2010. The increased dividend will be paid on November 1, 2010 to shareholders of record as of October 2, 2010.
 
Torchmark has had a consistent track record of paying quarterly dividends, primarily supported by its strong balance sheet and its ability to generate healthy cash flows. As proof of its cash flow strength, the company reported $27 million in cash holdings at the end of the second quarter. Accordingly, Torchmark’s annualized dividend yield of 1.18% supersedes the industry average of 1.08%.
 
In addition to raising dividends, the company also buys back shares regularly. During the second quarter of 2010, Torchmark spent $6.2 million on buying back 1.2 million shares. The company has already bought back 0.7 million shares for $33.1 million in the current quarter. Share repurchases and dividend hikes are effective means of returning value to shareholders.
 
During the second quarter conference call, management provided full year 2010 earnings outlook of $6.25–$6.30 per share, assuming no further share repurchases.
 
Torchmark is well positioned to deliver solid revenues based on an increasing agent count at American Income, the major contributor to Life sales. Positive ratings from rating agencies, the company’s concerted effort to lower debt levels, as well as the leveraging of a healthy cash balance to pay dividends and repurchase shares bode well for Torchmark.
 
However, a lackluster economy, sluggish unemployment levels and a soft Health segment keep us on the sidelines. We maintain our “Neutral” recommendation on Torchmark. The quantitative Zacks #3 Rank (short-term ‘Hold’ rating)  indicates no clear directional pressure on the shares over the near term.
 
Headquartered in McKinney, Texas, Torchmark Corporation provides annuities, whole and term life insurance, accidental death insurance, health insurance, Medicare supplements, and long-term health care policies.

 
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