Making their first public comments on the company's new dividend, Lexmark International executives said Friday they intend to spend more than half of the company's free cash flow on dividends and share repurchases.
"The priority use of our free cash flow will be to maintain and grow the dividend," chief executive Paul Rooke told analysts during a morning conference call. "We will continue to use share repurchase to return additional cash to shareholders, but this could fluctuate from time to time with acquisitions."
The company announced the first dividend in its 20-year history after the close of trading Thursday. The regular quarterly 25-cent dividend will begin Nov. 30 to shareholders of record as of Nov. 15.
The move ended off-and-on criticism over the years by analysts who suggested that Lexmark should issue dividends rather than solely repurchase shares of the company's stock. In theory, repurchases signal to the market that companies think their shares are undervalued. Historically, the company had bought back shares until it halted the practice in 2008 because much of its cash was overseas, and it would have had to pay a certain amount to be able to bring the cash back to the United States to pay for share repurchases. It resumed buying back shares in the third quarter.
Chief financial officer John Gamble Jr. said the company has roughly $300 million in U.S. cash, and Lexmark's U.S. cash flow "should more than cover the dividend."
He also emphasized the company's strong resources in terms of being able to make acquisitions to continue expanding its business. In roughly the past year, the company has acquired Perceptive Software and Pallas Athena to strengthen its software offerings. Lexmark intends to use "somewhat" less than 50 percent of available cash on acquisitions, and on other obligations, including pension funding, Gamble said.
"We have $1.2 billion in cash available, and we have additional debt capacity available to us," Gamble said. "So we don't feel constrained at all in terms of our ability to execute acquisitions."