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Rent-A-Center Hikes Dividend: What Else Should You Know?

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Rent-A-Center, Inc. RCII is focused on boosting investors’ sentiments through several growth initiatives and shareholder-friendly moves. In an effort to enhance shareholder value, the company announced a 16% increase in its quarterly dividend, taking it to 29 cents from 25 cents a share. The raised dividend is payable on Jan 29, 2020 to shareholders of record as on Jan 6.

Dividend hikes not only enhance shareholder returns but also raise the market value of the stock. Through this strategy, companies try to win investors and persuade them to either buy or hold the scrip instead of selling it. Dividend hike is a practice common among companies with a healthy financial status, which in turn is backed by their operating results.

With an extensive network of stores, Rent-A-Center is one of the largest rent-to-own operators in North America. The sheer geographic reach enables the company to effectively penetrate its target markets. It is investing in enhancing omni-channel platform so that customers can experience a seamless approach across channels, markets, retailers, products and brands. The company is increasing e-commerce offerings and mobile applications, and leveraging cloud-based point-of-sale platform to manage orders more efficiently, lower losses and cut operating costs.

Rent-A-Center is taking prudent steps to optimize rental merchandise levels in accordance with sales trends. The company is focusing on cost containment, improving traffic trends, targeted value proposition and augmentation of cash flow. It is also rationalizing store base and lowering debt load. Management now anticipates net debt of $185-$200 million for 2019 with net debt to EBITDA ratio of 0.7-0.8. Management had previously projected net debt of $195-$225 million for 2019 with net debt to EBITDA ratio of 0.7-1.

Also, the company’s Acceptance Now business model is gaining traction. Notably, revenues at Acceptance Now grew 6.4% to $184.5 million in the third quarter driven by robust comparable sales and acquisition of Merchants Preferred. Also, same-store sales at the Acceptance Now segment improved 6.2% during the third quarter. The company now expects Acceptance NOW revenues for 2019 to be $735-$750 million, up from the previous guidance of $725-$745 million. By 2022, Rent-A-Center expects to increase Acceptance Now and Merchants Preferred revenues more than $1.2 billion.

Moreover, management has undertaken initiatives to strengthen the performance of its Core U.S. segment. In an attempt to augment cash flow generation from Core U.S. business, the company is focusing on rates, terms and purchase options that are much more aligned with the customers’ needs. It is also optimizing product mix, increasing the average ticket price, upgrading workforce, and rationalizing existing stores.

Notably, this Zacks Rank #3 (Hold) stock has surged 60.8% so far in the year, outperforming the industry’s growth of 6.4%.

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