Just nearly a week before its first-quarter 2012 earnings release, Tiffany & Company (TIF - Analyst Report), a high-end jewelry designer, manufacturer and retailer, hit the market with the news of dividend increase.
Up Goes Dividend
The New York based company, Tiffany, raised its quarterly dividend by 10%. This is the 11th time the company has hiked its dividend in the last 10 years.
The board approved an increase in annual dividend to $1.28 per share (or 32 cents quarterly) from $1.16 (or 29 cents quarterly). The increased dividend is slated to be paid on July 10, 2012, to shareholders of record as on June 20.
However, the news did not provide any impetus to the stock, as the share price of Tiffany fell 3.4% or $2.08 to close at $60.07 on Thursday. The dividend yield based on the new payout and the last closing market price is 2.1%.
In May 2011, Tiffany, an S&P 500 company, last hiked its annual dividend to $1.16 from $1.00, reflecting an increase of 16%.
Tiffany’s commitment towards increasing shareholders’ return reflects its sound liquidity position and defined future prospects. The company ended fiscal 2011, with cash and cash equivalents and short-term investments of $442.2 million.
Role of Dividend
Increasing dividend is becoming a trend these days, mostly followed by companies that boast of a stable cash position and healthy cash flows. These strategies not only enhance shareholders’ return but also raise the market value of the stock. Through this strategy, the companies also bolster investors’ confidence on the stock, thereby persuading them to either buy or hold the scrip instead of selling them.
Perhaps, a hike in dividend appears to be one of the best tools to win the hearts of the investors, who now prefer to move to a safe haven, in an economy that is still struggling to recover. Investors, in order to shield themselves from the upheavals that the financial world is susceptible to, are now diligently choosing their portfolio of stocks that can give them the best returns. On that note, while building the portfolio, dividend growth potentiality plays a vital role.
Tiffany holds a significant position in the world jewelry market and is poised to benefit from its increased geographic reach. The company generates nearly half of its total sales internationally. We believe that Tiffany is well positioned to deliver healthy sales and earnings growth.
The company is focused on opening smaller stores that offer selected collections of lower-priced, higher-margin products, which in turn boost store productivity. Tiffany concentrates on improving sales per square foot through higher customer traffic and converting them into potential buyers by targeted advertising, ongoing sales training and customer-oriented initiatives.
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.
Tiffany, which faces stiff competition from Signet Jewelers Limited (SIG - Snapshot Report) and Zale Corporation , is scheduled to release its first-quarter 2012 financial results on May 24, 2012. Currently, the Zacks Consensus Estimate is pegged at 70 cents a share, reflecting a year-over-year growth of 4.5%.
Currently, we have a long-term ‘Neutral’ recommendation on the stock. Moreover, Tiffany holds a Zacks #3 Rank that translates into a short-term ‘Hold’ rating.