Baxter Hikes Dividend

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Baxter International (BAX) recently announced a quarterly dividend of 45 cents per share, payable as of October 1, 2012, to stockholders of record at the close on September 7, 2012. The new dividend constitutes a yearly dividend of $1.80 per share, up over 34% from the prior annual dividend of $1.34. Baxter’s payout correspondingly goes up to about 40% from approximately 30% earlier.

Baxter also announced a fresh share buyback authorization of up to $2 billion of its common stock. It has about $450 million remaining from its earlier program approved in December 2010. The company will repurchase shares from the open market as per its discretion.

Baxter enjoys robust cash flow and it has returned notable funds to shareholders by way of share repurchases and dividends. The company has generated average annual cash flow of $2.7 billion in the past 5 years. It has returned over $11.4 billion in aggregate to its stockholders by way of share repurchases and dividends. 

Baxter, in November 2011, completed its acquisition of Baxa Corporation. The takeover highlights the company’s continued commitment toward patient safety and nutrition. It also permits Baxter to provide a wider set of solutions for the safe preparation and delivery of IV medication. Baxa’s know-how will benefit patients across the globe.

Moreover, Baxter struck a deal, in December 2011, to buy Synovis Life Technologies, a well-known provider of mechanical and biological products for the repair of soft tissue in a large number of surgical operations. The acquisition will further expand Baxter’s offerings in the area of biosurgery and regenerative treatment. The takeover of Synovis was completed in the first quarter of 2012.

On the flip side, despite resilience in Plasma Proteins and Antibody Therapy sub-segments, we are concerned about relative stagnation in sales, a slightly somber outlook for hospital spending and tightening of reimbursement. We also account for the unfavorable impact of foreign exchange translation and possible dilution associated with the company’s acquisitions of Baxa and Synovis.

Improved execution has lifted sentiment somewhat toward Baxter. It is a good bet for value investors willing to wait as fundamentals improve further. Among others, the company competes with Becton, Dickinson and Company (BDX) in certain niches. We currently have a Neutral long-term recommendation on Baxter. The stock currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

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