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Orthopedic devices major Stryker Corporation (SYK - Analyst Report) has raised its quarterly cash dividend to 26.5 cents from 21.25 cents, representing a 25% growth. This increases the annual dividend to $1.06 cents per share from the current payout of 85 cents, which equates to a dividend yield of roughly 2%. The revised quarterly dividend is payable on January 31, 2012, to shareholders of record as on December 31, 2012.

In addition, the Michigan-based company approved an additional $405 million share repurchase authorization, which raises the total to $1 billion. The repurchase will be executed from time to time based on market conditions, stock price and other factors.

The dividend increase along with the share buyback program underscores Stryker’s commitment to deliver incremental returns to investors leveraging a solid balance sheet, healthy free cash flow and earnings power.

Stryker’s solid balance sheet allows the company to support the dividend hike as well as the share repurchase program. The company exited the third quarter of 2012 with cash and cash equivalents and marketable securities of $3,863 million, up 20.2%. It had repurchased roughly 0.4 million shares for $19 million in the reported quarter.

However, the company’s share price remained roughly unchanged to close at $54.35 on December 6, 2012. This might reflect on the fact that the news was unable to encourage investor confidence on the stock.

Stryker’s previous dividend increase was in December 2011, when it raised the quarterly payout by 14.3% to 20 cents a share from 17.5 cents. In 2011, total dividend payments to shareholders were $279 and the total cash used for share repurchases was $622.

With a market-cap of $20.66 billion, Stryker is one of the world’s largest medical device companies operating in the global orthopedic market. Further, expansion into fast-growing international markets via strategic acquisitions and new product launches represent attractive growth opportunities.

The company has managed to meet the Zacks Consensus Estimate in three of the last four quarters. However, it missed the same by 1.02% in the last quarter. The current Zacks Consensus Estimates for the fourth and the full-year 2012 are $1.08 cents and $4.05, respectively.

Stryker faces several challenges, which include still soft international sales, tough hospital capital budgets and the upcoming Med-tech tax. Moreover, despite recent stability in the domestic market, it remains challenged by currency fluctuations and pricing pressure. Additionally, Stryker operates in the highly competitive orthopedic industry and faces strong competition from players like Zimmer Holdings Inc. (ZMH - Analyst Report).

We currently have a ‘Neutral’ recommendation on Stryker. The stock carries a short-term Zacks #4 Rank (Sell rating).

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