Rent-A-Center Inc. (RCII - Free Report) , one of the largest rent-to-own operators, recently announced a dividend hike, revealing its plan to utilize its free cash to boost stakeholders’ return.
Plano, Texas-based company, Rent-A-Center, raised its quarterly dividend by 31% to 21 cents (or 84 cents annually) from 16 cents a share (or 64 cents annually). The company announced that the increased dividend will be paid on January 24, 2013 to stakeholders of record as on January 3, 2013. This is the 11th successive cash dividend.
However, the news did not provide much impetus to the stock, as the share price of Rent-A-Center rose by 1.8% or 62 cents to close at $35.78 on Tuesday. The dividend yield based on the new payout and the last closing market price is 2.3%.
In May 2011, Rent-A-Center, last hiked its dividend to 64 cents from 24 cents a share, reflecting an increase of 167%.
Rent-A-Center’s commitment towards increasing shareholders’ return reflects its free cash flow generating capability, sound liquidity position and defined future prospects. During the first-nine months of 2012, the company generated cash flow from operations of about $258.7 million.
Dividend increases not only enhance shareholder’s return but also raise the market value of the stock. Through this strategy, the companies bolster investors’ confidence on the stock, thereby persuading them to either buy or hold the scrip instead of selling them. Looking ahead, the company remains confident about its growth prospects, suggesting enhanced value for shareholders via dividend payout as well as share buybacks.
During the first-nine months of 2012, the company bought back 866,985 shares for approximately $30.1 million. Since the inception of the share buyback program, the company has repurchased 30,189,738 shares and employed approximately $745.6 million out of the $800 million authorized. The company’s board of directors enhanced the share repurchase authorization by an additional $200 million to $1 billion.
Rent-A-Center offers consumer electronics, appliances and furniture products under rental purchase schemes that allow customers to own the merchandise upon the completion of the rental period. Due to continued tightening of the credit market, customers view rent-to-own as a more flexible and viable option compared to credit. However, the sluggish recovery and a fragile job market may make customers reluctant to enter new rental-purchase deals.
Currently, we maintain our long-term Neutral recommendation on the stock. Moreover, Rent-A-Center, which competes with Aaron’s Inc. (AAN - Free Report) , retains a Zacks #3 Rank that translates into a short-term Hold rating.