With a debt to equity ratio of 60%, OC has significant although not unmanageable debt, and pays no dividend.
This tapering off of expansion should free up cash to pay down debt, enlarge the dividend and fund a new share buyback plan.
In particular, he thinks Cisco will take advantage of low interest rates by raising debt to facilitate higher dividend and to maintain its share repurchase program.
Existing lenders were in a power position, having to amend to approve the incremental debt used to fund the dividend, and second-lien investors in particular were concerned about the additional first-lien debt coming in ahead of them.
The company decided to discontinue its dividend in 2012 in order to pay down debt and strengthen its balance sheet, according to RBC Capital Markets.
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The largest drugmakers have also taken on more debt, in part to fund some outsized mergers, dividend increases and stock buybacks.
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Aside from the surprise profit and dividend cuts, the company also reported a net debt-to-equity ratio of 61%, double that of last year because of new loans, though Wu says much of that is for project financing.
In other words, the company retained no earnings and probably had to finance its dividend payment in part with debt or equity.
In fact, Chief Financial Officer Russell Ball indicated that with planned dividend payouts, debt payments, operating expenses, capital expenditures and lower cash flow from Batu Hijau operations in Indonesia, the company will spend more than it earns through 2013, but then this is expected to reverse.
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It is generating enormous cash flows, pays a 4.5% dividend (which it just raised), and will be debt-free in the not too distant future.
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The year was defined by fits and starts related to Europe's sovereign-debt crisis and global economic growth concerns, prompting investors to flock to defensive and dividend-paying stocks.
The company pays a 2% dividend, the current ratio is 1.8 and long-term debt-to-equity is .39.
Take dividend recapitalisations, in which private-equity firms put more debt into a company and take out equity to pay themselves and investors (see chart).
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To compile a dividend stock buy list, you need to be knowledgeable in cash flow and debt metrics because it is the sustainability of high dividends that make certain stocks attractive.
As for the criticism that PE firms bleed cash out of companies through debt-financed dividend recapitalizations, the data show that such deals consistently have lower initial leverage and, therefore, lower default rates than those seen in the broader market.
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Dividend yields are ranging 4% to 5%, and numerous companies have reasonable debt loads and plenty of cash.
Although the firm recently halved its dividend to 2%, it did so to pay down debt acquired during its purchase of Albertsons and from investing in discount supermarkets.
Anyone who buys SeaWorld stock is likely attracted to the promised 3% annual dividend, but they are also making a bet that the economy is really improving and that this debt-laden company will be able to finance future improvements needed to stay competitive.
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