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In an attempt to enhance shareholder value, Campbell Soup Company (CPB - Analyst Report) recently hiked its quarterly dividend by approximately 7.6% to 31.2 cents per share, thereby bringing the annual dividend to $1.248.

The new dividend is payable on Oct 28, 2013 to shareholders of record as of Oct 8, 2013. The annualized dividend yield, based on the increased dividend and last closing stock price of $41.28, is over 3.0%. Earlier, on Nov 1, 2010, Campbell Soup raised its quarterly dividend to 29 cents from 27.5 cents per share.

The company has been consistently paying dividend ever since it got publicly listed in 1954. The company’s strategy of paying regular dividend and increasing the same at feasible intervals reflects its commitment to enhance long-term value for shareholders. Through this, Campbell Soup also depicts its ability to boost earnings as well as cash flows in the long run.

During fiscal 2013, Campbell Soup returned approximately $367 million to shareholders in the form of quarterly dividends. Campbell Soup’s strong balance sheet and cash flow provide financial flexibility in shareholder-friendly moves, product innovation and the expansion of operations geographically. The company generated operating cash flow of $1 billion during fiscal 2013, while ended the year with cash and cash equivalents were $333 million.

Increasing the dividend has been common for companies having a stable cash position and healthy cash flow. Apart from Campbell Soup, many other firms have raised their quarterly dividends in the recent past. These include McDonald's Corp. (MCD - Analyst Report), Microsoft Corporation (MSFT - Analyst Report) and Scholastic Corporation (SCHL - Snapshot Report) that raised their dividends by 5% to 81 cents,22% to 28 cents and 20% to 15 cents, respectively.

We believe that dividend payments not only enhance shareholders’ return but raise the market value of the stock as well. Through dividend payouts, companies bolster investors’ confidence, persuading them to either buy or hold the scrip instead of selling it. Looking ahead, Campbell Soup remains confident of its growth potential, raising hopes for further enhancement of shareholder value through dividend payouts.

However, Campbell Soup has a highly leveraged balance sheet with long-term debt of $2,544 million at the end of fiscal 2013 and shareholders’ equity of $1,210 million. Therefore, Campbell Soup carries a Zacks Rank #4 (Sell).

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