Shares of Dell popped after the company initiated a $0.08/share quarterly dividend with payout to begin in Q3F13. This amounts to $0.32/share annually (or $568 million) and implies a 2.7% dividend yield based on Tuesday’s close.
Dell’s move comes as the company has been attempting to remake its business model in the face of soft sales of personal computers. It has attempted to boost both revenue and profits by acquiring higher-margin businesses, including data storage, security and networking technologies.
Given that Dell has generated more than $2.9 billion in free cash flow over the last 12 months and ended Q1F13 with $17.2 billion in cash and investments, Credit Suisse believes the company has more than sufficient means to fund the dividend. Dell also noted plans to increase its target range for capital distributions to shareholders to 20-35% of free cash flow (27.5% at the midpoint) from 10-30% (20% at the midpoint).
Credit Suisse expects the market to view this move favorably in the near-term as it reduces the risk of a large M&A transaction.
Dell (DELL : NASDAQ : US$12.28), Net Change: 0.31, % Change: 2.55%, Volume: 41,141,486