For the second time in the last six months,
) has raised its shareholders' wealth through a dividend hike.
Yesterday, the Board of Directors of Harris has increased the
quarterly dividend rate by 12% from 33 cents per share to 37
The new dividend will be payable on September 19, 2012, to
shareholders of record as of September 7, 2012. Earlier, in March,
the company raised its quarterly dividend rate by 18% from 28 cents
per share to 33 cents.
According to management, the company's growing free cash flow is
the primary reason behind two successive dividend hikes. Harris
generated $643 million of free cash in fiscal 2012 (ended June 29,
2012) compared with approximately $522 million in fiscal 2011.
Additionally, management already declared that it will use $200
million from the proceeds of Broadcast Communications segment
sale-off to repurchase shares within the middle of fiscal 2013 (by
the end of CY 2012).
Harris has taken tactical decisions to restructure its business
model. In February 2012, the company divested its Cyber Integrated
Solutions wing, which provided remote cloud hosting. The company
also sold all of its related data center facilities.
Moreover, the company strategically decided to divest its
Broadcast Communications businesses, which is consistently
underperforming. Harris competes with the likes of
General Dynamics Corp.
Motorola Solutions Inc.
) among others.
Lower spending by the U.S. government for defense, coupled with
a slowdown in international defense expenditures have affected
Harris. Management already declared that the company will face
tight government spending till the first quarter of fiscal 2013.
The main reason for this soft outlook is weaker-than-expected
demand for the company's tactical radios from international
The U.S., on the other hand, is expected to reduce its activity
in South-East Asia. Furthermore, continuation of global
macro-economic headwinds took a toll on Harris' order bookings.
We believe as near-term growth opportunities become less
predictable, management is pursuing a systematic capital return
program to make the stock attractive. Year-to-date, the stock
provided a handsome return of 30.3% compared with the benchmark
S&P 500 return of a mere 12.2%.
We reaffirm our long-term Neutral recommendation on Harris.
Currently, it holds a short-term Zacks #3 Rank (Hold) on the
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