Nordstrom Expands Its Share Buyback Program

Upscale department store operator, Nordstrom Inc.’s (JWN) board of directors recently approved a share buyback program of $800 million to be exhausted through Mar 1, 2015. The new authorization is an addition to the company’s existing program, which still has $344 million outstanding, with expiration date of Feb 1, 2014.

Concurrently, the company announced its decision to raise the quarterly dividend by 3 cents to 30 cents per share. This translates into an 11% hike from the prior dividend. The increased dividend will be paid on Mar 22, 2013 to stockholders of record as of Mar 11. Prior to this announcement, this Rank #3 (Hold) stock had been paying a quarterly dividend of 27 cents per share.

The strength of Nordstrom’s business model is reflected in its strong cash generation capabilities and its commitment to return value to the shareholders. We believe that continued share buybacks and dividend hike will increase investors’ confidence.

Nordstrom’s strong balance sheet and cash flows provide financial flexibility in matters of shareholder friendly moves and store and online business expansions. During fiscal 2012, it shelled out $725 million on share repurchases and $220 million on cash dividends. Cash and cash equivalents stood at $1,285 million at the end of the fiscal. We remain encouraged by Nordstrom’s strong cash position and its ability to service its long-term debts.

Other companies that recently increased dividend include Texas Instruments Inc. (TXN), by 33% to 28 cents, The Coca-Cola Company (KO) by 10% to 28 cents, and GameStop Corporation (GME) by 10% to 27.5 cents.

We believe that dividend hikes and share repurchases not only enhance shareholder’s return, but raise the market value of the stock. Through dividend raises, companies bolster investors’ confidence, persuading them to either buy or hold the scrip instead of selling these. Looking ahead, the company remains confident of its growth potential, suggesting enhanced value for shareholders via dividend payout as well as share buybacks.

 

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