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Patterson Rewards Shareholders with 10% Dividend Hike - Analyst Blog

Patterson Companies Inc. ( PDCO ) recently hiked its quarterly dividend by 10% to 22 cents per share from 20 cents. This lifts the annual dividend to 88 cents per share from the current 80 cents and translates into a dividend yield of approximately 1.8%.

The raised quarterly dividend is payable on Apr 24, 2015, to shareholders of record as of Apr 10, 2015. Patterson's previous dividend increase was made in Mar 2014, when it raised the quarterly payout by 25% to 20 cents a share from 16 cents.

In the nine months ending Jan 24, 2015, Patterson paid dividend worth $60.3 million. Although we believe that the recent dividend hike underscores the company's commitment to deliver incremental returns to investors, the lowered dividend rate (from 25% to 10%) reflects growing pressure on balance sheet and modest cash flow generation activity.

Patterson exited the third quarter of fiscal 2015 (ending Jan 24, 2015) with cash and cash equivalents of $342 million, which was higher than $305.7 million at the end of the third quarter of 2014 (Apr 26, 2014), but slightly lower than $342.7 million at the end of the second quarter of 2015 (Oct 25, 2014).

In the first nine months of fiscal 2015, net cash from operating activities were $158.1 million, higher than $149.8 million reported in the year-ago period. Management believes that improving liquidity and strong cash flow generation will help Patterson maintain its capital allocation strategy.

At the end of the first nine months of fiscal 2015, Patterson had bought back roughly 1.2 million shares for $47.5 million. The company has approximately 21 million shares remaining for repurchase under the current authorization. However, we also note that the company did not buy back any shares in the last two quarters.

During its third-quarter conference call, management refused to provide any details regarding its absence from the open market. However, we believe that Patterson is likely to explore strategic acquisitions, in order to consolidate its position - particularly in the veterinary market - post the acquisition of MWI Veterinary by AmerisourceBergen Corp ABC .

Patterson is also extending its $250 million debt-facility, which was due this month. The long-term extension will further improve Patterson's liquidity that will help it to pursue strategic acquisitions as well as resume share buy-back activity going forward.

Stocks to Consider

Patterson currently carries a Zacks Rank #3 (Hold). Better-ranked stocks include AmerisourceBergen, Cardinal Health CAH and Laboratory Corp LH . All the three stocks carry a Zacks Rank #2 (Buy).

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AMERISOURCEBRGN (ABC): Free Stock Analysis Report

LABORATORY CP (LH): Free Stock Analysis Report

PATTERSON COS (PDCO): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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