Avnet Inc. says it will resume paying dividends to shareholders starting in the just ended quarter and marking its first payment since 2002. In a statement, the company’s board of directors said it approved “the initiation of a quarterly cash dividend” and noted that it expects to do this “on a regular basis” in future.
The electronic components distributor and embedded technology solutions provider stopped paying dividends in 2002 following one of the industry’s worst downturns. Many other technology companies similarly halted dividend payments as sales swooned and companies reorganized operations, slashed operating costs and implemented cash-conservation programs.
By resuming the payments of dividends, Avnet’s management and board of directors are indicating their belief that the company is fully back on track although sales growth remains sluggish. With more than $1 billion in cash and short-term investments – the highest in three years – as at the end of the fiscal year ended June 29, Avnet is better positioned to reward investors and this action will further boost its stock price and market valuation.
"Given our confidence in and commitment to long-term shareholder value creation, we believe now is an appropriate time to incorporate a more consistent element of returning capital to shareholders in the form of a dividend,” said Rick Hamada, Avnet’s CEO in the statement. “Our focus on value-based management and success in growing the company has resulted in a cash flow from operations profile which, when combined with our strong balance sheet, provides us the financial flexibility to prioritize this commitment into our longer-term capital allocation strategy."
Investors have richly rewarded Avnet with higher valuation in recent months. Its stock price rose to a 52-week high of $39.27 on August 1 and closed at $38.81 on Friday, August 9. The shares are likely to strengthen even further when trading resumes on Monday. The shares have now risen to their highest level in more than five years and could potentially surge above the $43.75 peak from 2007. Stock price targets compiled by Yahoo! show analysts on average expect the company’s shares to rise to $41 over the next 12 months.
Like other segments of the market Avnet too has challenges, including recent tepid sales growth. Sales in the June quarter rose 4.5 percent to $6.59 billion from $6.31 billion in the year-ago quarter and improved from $6.3 billion in the March quarter. Profits fell to $126.1 million from $133.4 million although earnings per share were unchanged at 91 cents as the number of shares outstanding fell to 139 million from 147 million.
The company said it would institute some cost-control actions in response to the slower sales growth. “As a result of challenging market conditions early in the fiscal year when revenue in our western regions declined double digits year over year, our team responded by aligning both expenses and working capital to marketplace realities and focusing the portfolio on profitable growth opportunities,” Hamada said in a statement announcing the company’s fiscal fourth quarter results. “These ongoing activities helped to offset some of the impact of this revenue decline and the associated margin pressure as we generated $775 million of adjusted operating income and cash flow from operations grew 32% to $696 million.”