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Patterson Companies Inc. (PDCO - Analyst Report), a Minn.-based distributor of dental, veterinarian and rehabilitation medical supplies, recently announced a dividend hike as well as a share buyback program to leverage investor return.

Patterson has increased its quarterly dividend by 14% to 16 cents a share from 14 cents. This lifted the annual dividend to 64 cents per share from the current payout of 56 cents and equates a dividend yield of roughly 1.7%.

The revised quarterly dividend is payable on Apr 30, 2013, to shareholders of record as on Apr 12, 2013. The company’s previous dividend increase was in Mar 2012, when it raised the quarterly payout by roughly 17% to 14 cents a share from 12 cents.

Management also announced a share buyback program of $25 million to leverage its earnings power. This plan replaced Patterson’s earlier share repurchase authorizations. At the end of the third quarter of fiscal 2013, the company had about 7 million shares available for repurchase under its 2016 share buyback program.

The shares will be repurchased through open market transactions till Mar 19, 2018 subject to certain terms and conditions. Following the repurchase, the shares will be retired and will be considered as authorized but un-issued.

Our View

Patterson has strong liquidity to support the dividend increase as well as the share repurchase plan. The company ended the third quarter of fiscal 2013 with cash and cash equivalents of $472.4 million.

Patterson provides a wide range of consumables, equipment and software, and value-added services to its customers. Patterson Dental is the company’s largest business segment and one of the two largest distributors of dental products in North America.

Moreover, the alliance with Sirona Dental Systems (SIRO - Snapshot Report) further bolsters Patterson Dental’s leading position in the North American dental distribution business. We also believe that its Veterinary business can capture a considerable market size, as the demand for veterinary care is on the rise in the U.S.

The company carries a Zacks Rank #3 (Hold). Some of the Medical/Dental Supplies companies worth a look are Medical Action Industries and The Cooper Companies (COO - Analyst Report). The former carries a Zacks Rank #1 (Strong Buy), while the latter carries a Zacks Rank #2 (Buy).

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