Limited Brands Hikes Dividend - Analyst Blog
06 February 2013 - 4:40AM
Zacks
Limited Brands Inc. (LTD) is an interesting
option for investors seeking both growth and income. This specialty
retailer of women’s intimate and other apparels yesterday announced
its decision of a dividend hike, following which the shares of this
Zacks Rank #3 (Hold) rose 0.4% to close at $47.42.
Dividend Raised
The Columbus, Ohio-based Limited Brands raised its quarterly
dividend by 20% to 30 cents (or $1.20 annually) from 25 cents a
share (or $1.00 annually). The increased dividend, which is the
153rd successive quarterly payout, will be paid on Mar
8, 2013, to stockholders of record as of Feb 22, 2013. The dividend
yield based on the new payout and the last closing market price is
approximately 2.5%.
The news of the dividend hike reflects Limited Brands’ plan of
utilizing free cash to enhance shareholders’ return, thereby
boosting investors’ confidence in the stock.
In Jan 2012, the company last increased its quarterly dividend
by 25% to 25 cents. Again, on Dec 10, 2012, Limited Brands
announced a special dividend of $3.00 per share, which was paid on
Dec 26, 2012 to shareholders of record as on Dec 20, 2012.
Limited Brands has been actively managing its cash flows and
returning much of its free cash to shareholders via dividends,
while maintaining a healthy balance sheet and credit ratios that
are necessary for an investment-grade rating.
Other companies, which recently increased dividend, include
Family Dollar Stores Inc. (FDO), by 23.8% to 26
cents, The McGraw-Hill Companies, Inc. (MHP) by
9.8% to 28 cents, and BB&T Corporation (BBT)
by 15% to 23 cents.
Role of Dividend
Dividend hikes not only enhance shareholder’s return but raise
the market value of the stock. Through this strategy, the companies
bolster investor confidence on the stock, thereby persuading them
to either buy or hold the scrip instead of selling them.
Looking ahead, the company remains confident of its growth
potential, suggesting enhanced value for shareholders via dividend
payout as well as share buybacks.
A dividend hike primarily reflects the company’s sound financial
position and defined future prospects. This is quite evident from
Limited Brands’ balance sheet and cash flow positions. The company
ended the third quarter of 2012 with cash and cash equivalents of
$547 million. Management expects to generate free cash flow of $750
million during fiscal 2012.
Closing Comment
Limited Brands’ inventory management, and merchandise
initiatives have kept it afloat in a sluggish consumer environment.
The company’s Bath & Body Works segment is gaining traction,
driven by a rise in store transactions, enhancement in the direct
channel business and growth in new stores.
Victoria’s Secret Stores have been performing well, and the
company is also revamping its La Senza brand. But stiff competition
and erratic consumer behavior are still matters of concern.
Moreover, the company’s top line is struggling.
BB&T CORP (BBT): Free Stock Analysis Report
FAMILY DOLLAR (FDO): Free Stock Analysis Report
LIMITED BRANDS (LTD): Free Stock Analysis Report
MCGRAW-HILL COS (MHP): Free Stock Analysis Report
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