Tiffany Enhances Return

Just nearly a week before its first-quarter 2011 earnings release, Tiffany & Company (TIF - Analyst Report), a high-end jewelry designer, manufacturer and retailer, hit the market with the news of dividend increase, revealing its plan to utilize its free cash to enhance shareholders’ return, thereby boosting investors’ confidence on the stock.

The New York based company, Tiffany, raised its quarterly dividend by 16%. This is the ninth time the company has hiked its dividend in the last nine years.

The board approved an increase in annual dividend to $1.16 per share (or 29 cents quarterly) from $1.00 (or 25 cents quarterly). The increased dividend is slated to be paid on July 11, 2011, to stockholders of record as on June 20, 2011.

Increase in dividend reflects the company’s sound financial position and well-defined future prospects. With signs of recovery in the economy, share repurchases and dividend increases have now become common trends among companies sitting on surplus cash. These strategies not only enhance shareholders’ return but also raise the market value of the stock.

Tiffany, which faces stiff competition from Signet Jewelers Limited (SIG - Snapshot Report) and Zale Corporation (ZLC - Snapshot Report), is scheduled to release its first-quarter 2011 financial results on May 26, 2011. Currently, Zacks Consensus Estimate is pegging at 56 cents a share, reflecting a year-over-year growth of 16.7%.

We believe Tiffany is well positioned to support robust sales and earnings growth by leveraging capital investments made over the past several years in distribution, manufacturing and diamond sourcing processes. Moreover, with nearly half of the total sales generated internationally, we believe that the company is well diversified from a regional perspective.

However, the company’s customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels and high household debt levels, which may negatively impact their discretionary spending, and in turn hurt the company’s growth and profitability.

Currently, we have a long-term ‘Neutral’ rating on the stock. However, Tiffany holds a Zacks #1 Rank, which translates into a short-term ‘Strong Buy’ rating.