Family Dollar Up on Dividend Hike - Analyst Blog
It seems that Family Dollar Stores Inc. ( FDO ) is trying to regain investors' confidence through shareholder friendly moves after dismal first-quarter fiscal 2014 results earlier this month. Shares of this operator of self-service retail discount store chains rose 1.2% after the recent announcement of a dividend hike.
The Matthews, NC-based company raised its quarterly dividend by 19.2% to 31 cents (or $1.24 annually) from 26 cents a share (or $1.04 annually). The company announced that the increased dividend will be effective from the next quarterly payout. The dividend yield based on the new payout and the last closing market price of $65.56 is 1.9%.
Since the inception of the dividend program in 1976, the company has raised its dividend every year, this being the 38th successive hike. Family Dollar's commitment towards increasing shareholders' return reflects its free cash flow generating capability.
In Jan 2013, Family Dollar last hiked its dividend to 26 cents from 21 cents a share, reflecting an increase of 23.8%. Other companies that recently increased quarterly dividend include Enterprise Products Partners L.P. ( EPD ) and ACE Ltd ( ACE ). The companies raised their dividends by 6.1% to 70 cents and 24% to 63 cents, respectively. Another company, Omega Healthcare Investors Inc. ( OHI ) recently hiked its dividend by 2.1% to 49 cents.
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.
Earlier this month, Family Dollar posted lower-than-expected first-quarter fiscal 2014 results. The quarterly earnings of 68 cents a share missed the Zacks Consensus Estimate by a penny, and dropped 1.4% from 69 cents delivered in the prior-year quarter. Going forward, this Zacks Rank #5 (Strong Sell) stock does not see much improvement in macroeconomic trends and as a result lowered its earnings expectations.
Management took a cautious stance while providing guidance for fiscal 2014. Family Dollar now projects earnings in the band of 85 cents to 95 cents a share for the second quarter and between $3.25 and $3.55 per share for fiscal 2014. Earlier, the company had projected earnings in the range of $3.80 to $4.15. The current Zacks Consensus Estimate for fiscal 2014 is $3.42.