DISH Network Corp. (DISH - Analyst Report) – the second largest satellite TV operator in the U.S. has decided to pay a special cash dividend of $1 per share on the company’s common stock. The dividend is payable on December 28, 2012 to stockholders of record at the close of business on December 14, 2012.
Earlier, Dish Network issued two special dividends of $2 each in the year 2009 and 2011. In fact, over the last thirteen years, the company has issued only five dividends (inclusive of the recent dividend). Even its close rival and the largest satellite TV operator in the U.S., DIRECTV has never paid any dividend over the years. Unlike Dish Network, however, DIRECTV repurchase shares in order to boost its shareholders’ wealth.
Despite having a strong cash position of nearly $6.5 billion, the company has done little over the period to improve the shareholders’ wealth either by means of share repurchase or dividend payments.
We believe that such muted response toward Dish Network’s investors over the years is mainly due to the company’s highly leveraged balance sheet (nearly $10 billion outstanding debt in the recently concluded quarter). Moreover, stiff competition from other pay-TV service providers coupled with lack of triple play service offerings have forced the company to invest heavily on product and service upgrades. Additionally, the company also acquired DBSD North America Inc. and TerreStar Networks Inc. for a total cost of about $2.9 billion, last year, which has given them 40 MHz of satellite spectrum. Such acquisitions will not only help the company to set up terrestrial wireless network in the domestic market but at the same time will put huge pressure on its cash flow going forward.
Moreover, the recent fiscal-cliff crisis is expected to bring about a hike in taxable rate on dividend income of the shareholders from next year onwards. So, in order to defend its investors from paying higher taxes, most companies like Dish Network are offering higher dividend payments in fiscal 2012.
Currently, Dish Network has a Zacks #3 Rank, implying a short-term Hold rating on the stock. We are also maintaining our long-term Neutral recommendation on the company’s shares.