Omnicom Hikes Dividend 25%

Zacks Equity Research

Global marketing and corporate communications company Omnicom Group Inc. (OMC) recently increased its quarterly dividend rate by 25%. The company will now pay a quarterly dividend of 50 cents against 40 cents earlier.  The first increased quarterly dividend is payable on Jul 10 to shareholders of record as of Jun 13.

Following the raise, the company’s annualized dividend stands at $2.00 per share. The proposed dividend translates into a yield of over 2.9%, based on the closing price of $68.47 on May 21, 2014. Its trailing annual dividend stands at 2.4% and compares favorably with peers like The Interpublic Group of Companies, Inc. (IPG) and Publicis Groupe SA (PUBGY), having dividend yields of 2.1% and 1.4% respectively.

The company had earlier increased its quarterly dividend rate by 33.33%. The company paid a quarterly dividend of 40 cents against 30 cents earlier. Prior to that, Omnicom had increased its quarterly dividend in first-quarter 2012 from 25 cents to 30 cents per share.

Dividend hike is frequent among companies like Omnicom with a stable cash position and healthy cash flow. The company ended the quarter with cash and short-term investments aggregating around $2.1 billion, while free cash flow for the quarter was $312 million.

The recent dividend boost follows strong first-quarter 2014 results, with adjusted earnings of 80 cents per share beating the Zacks Consensus Estimate by a penny. Earnings also rose 7.9% from the year-ago comparable quarter’s adjusted earnings of 63 cents. The growth in bottom line was primarily driven by strong top-line performance and effective cost management.

Apart from paying dividends, the company enhances shareholder value by regularly buying back its common stock. In spite of the suspension of share buyback during the nine months when the Publicis deal was in process, the company aggregated the total share repurchases since Jan 2013 to $492.2 million, of which only $7 million were repurchased in the first quarter.

The company revealed its $35 billion merger-of-equals with Publicis in Jul 2013, but the deal was overcome by regulatory hurdles and management conflicts over key positions. Post termination of the merger on May 8, the company’s share repurchase program is expected to pick up speed.

Nevertheless, Omnicom has a strong track record of strengthening its business by organic as well as inorganic strategies. The company’s geographically-diversified business mix continues to benefit from growing demand in developing regions like the Asia Pacific, Latin America and Africa.

Omnicom currently holds a Zacks Rank #3 (Hold). A better-ranked stock in the industry is YuMe, Inc. (YUME), sporting a Zack Rank #2 (Buy).

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