Friday, October 7, 2011

Power of Dividends

Yesterday, Corning announced it was raising its dividend by 50% and would buy back up to $1.5 billion in stock.  The stock was up over 7% on the day.  We are quite pleased by the announcement as we have felt for some time the company has the capacity to return more money to shareholders.  We also think a higher dividend forces more discipline on the company management.

Importantly, we think that investors view dividend increases as meaningful signals by management  of how they view the company’s prospects, given that companies are loath to cut dividends. When we talked with Corning’s Investor Relations department several years ago about the dividend, they pointed to that very issue as why they were unlikely to raise the dividend--they did not want to be in a position where they may have to cut the dividend in a difficult business environment. We hope this indicates Corning is more positive with its outlook.

We look forward to additional signals from other company managements.

Disclosure: As of this date, the authors and clients of Harvest Financial Partners own Corning.  Positions may change at any time. This is not a recommendation.  This blog is for informational purposes only.