Limited Brands Inc.
) 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.
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
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
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.
), by 23.8% to 26 cents,
The McGraw-Hill Companies, Inc.
) by 9.8% to 28 cents, and
) 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
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.
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
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.
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LIMITED BRANDS (LTD): Free Stock Analysis
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