For the first time in its 20-year history, Lexington-based printer maker Lexmark International will issue a dividend to stockholders.
The company announced after the close of trading Thursday that it would issue a regular quarterly 25-cent dividend beginning Nov. 30 to shareholders of record as of Nov. 15.
The move ends off-and-on criticism over the years by analysts who suggested Lexmark should issue dividends rather than spend its money repurchasing shares of the company's stock. Lexmark historically had billed share repurchases as a way to return cash to stockholders. In theory, repurchases signal to the market that companies think their shares are undervalued.
Lexmark aggressively repurchased shares through 2008, when it halted the practice because much of its cash was overseas; the company would have had to pay a certain amount to be able to bring the cash back to the United States to fund share repurchases. In 2005 and 2006, the company spent nearly $2 billion repurchasing stock, typically paying in the $50s or $60s a share. The stock closed Thursday at $31.43.
"Clearly, share repurchase is something that hasn't driven a lot of share appreciation," said Cross Research analyst Shannon Cross.
The company bought back $125 million of shares in the last quarter, ending the third quarter with 78 million shares outstanding. The company intends to repurchase an additional $125 million of shares in the fourth quarter, executives said Tuesday in discussing the company's quarterly earnings with analysts.
During that conference call, the share repurchase practice was questioned again.
Analyst Toni Sacconaghi of Bernstein Research noted the company promoted the fact it had returned $4.3 billion to shareholders through repurchases since beginning them in 1997.
"Your market capitalization is only $2.5 billion, which certainly suggests that you have not received credit for that," he said, referring to the combined value of all outstanding Lexmark shares. CEO Paul Rooke responded that the company examined its policies regularly.
In announcing the dividend Thursday, Rooke noted in a statement that the move "reflects our confidence in the future of the business and our commitment to generating value for our shareholders."
Rooke will hold a conference call with analysts Friday morning to discuss the dividend. He noted in a statement that the company could continue pursuing acquisitions "to support the growth of the company" given Lexmark's "long history of solid cash generation."
Cross complimented the initiation of the dividend. "It's the right decision," she said. "This is a mature business."
At 3.2 percent, Lexmark's dividend yield is higher than that of its competitors, which are generally 2 percent or less.
"Lexmark's is higher and will be attractive to investors," Cross said. "This is something we've been saying they should do for a long time, so I'm happy to see it."