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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 39th 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.
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