The McGraw-Hill Companies Inc. ( ) , a publisher and provider of financial information and media services, recently broke the news of a dividend increase, reflecting its plan of utilizing its free cash to enhance shareholders’ return, thereby boosting investors’ confidence in the stock.

Up Goes Dividend

New Yorkbased company, McGraw-Hill, stated a hike in its quarterly dividend by 2% to 25.5 cents from 25 cents a share. The increased dividend will be paid on March 12, 2012, to stockholders of record as of February 27, 2012.

McGraw-Hill started distributing dividends way back in 1937. Since 1974, the company has boosted its dividend at a compound annual dividend growth rate of around 9.6% and is now among those S&P 500 companies (less than 25), which have raised dividend annually for the 39^th straight year.

However, the news did not provide much impetus to the stock, as the share price of McGraw-Hill crept up 1.4% to close at $46.04 on Wednesday. Last year, the company had raised its quarterly dividend by 6.4% to 25 cents.

Returning Values Now a Common Trend

Dividend increases and share repurchases have now become common trends among companies boasting a stable cash position and healthy cash flows. These strategies not only enhance shareholders’ return but also raise the market value of the stock.

General Electric Company ( GE - Analyst Report ) , which operates as a technology, service and finance conglomerate globally, raised its quarterly dividend by 13.3% to 17 cents a share. Enbridge Inc. ( ENB - Snapshot Report ) , which transports and distributes crude oil and natural gas, increased its quarterly dividend by 15% to 28.25 cents. AXIS Capital Holdings Limited ( AXS - Analyst Report ) , a global provider of specialty lines of insurance and treaty reinsurance, announced a 4% increase in its quarterly dividend to 24 cents.

Recently, Target Corporation ( TGT - Analyst Report ) , the operator of general merchandise and food discount stores, announced a new $5 billion share repurchase program. For-profit education company, Capella Education Company ( CPLA - Analyst Report ) also supplemented its existing share repurchase authorization with an additional sanction of $50 million. The increase in the share buyback program was based on the $34.8 million remaining at its disposal at the end of the third quarter of 2011.

Financials & Future

A dividend hike primarily reflects the company’s sound financial position and defined future prospects. This is quite evident from McGraw-Hill’s balance sheet and cash flow positions. The company ended the third quarter of 2011 with cash and cash equivalents of $1,437.6 million, and generated free cash flow of $627.3 million during nine-month period.

The company aims to create two "focused companies” – McGraw-Hill Financial and McGraw-Hill Education – with optimal-size capital and cost arrangement for amplifying client commitment and improving strategic and economic suppleness while increasing management’s focus and responsibility.

Currently, we have a ‘Neutral’ recommendation on the stock. However, McGraw-Hill, which competes with Pearson plc ( PSO - Snapshot Report ) , holds a Zacks #2 Rank, which translates into a short-term ‘Buy’ rating.