Corning Inc. (NYSE: GLW) is a true technology value stock if there ever was one. It has an extremely low earnings multiple and trades cheap to its asset value. The problem is that the core business metrics are in a slide, and not exactly a slide into home plate. The company has already talked down its expectations in prior weeks, but after the close came news of a large dividend hike and a large share buyback.
After shares have nearly been cut in half, the company is drawing a line in the sand and saying that enough is enough. Corning is raising its quarterly dividend by 50% to $0.075 from $0.05 per quarter. With a $12.60 closing price, its new yield will be nearly 2.4%. The dividend takes more importance over a share buyback because a share buyback can be a one-time or a short-time help. Hiking a dividend is indicative of a company’s outlook that it can maintain such a dividend for years and years. That $0.30 per year payout compares to Thomson Reuters estimates of $1.83 EPS for 2011 and $1.98 EPS for 2012. That is easy enough to maintain even if it really misses its targets.
The buyback declared was for up to $1.5 billion through the end of 2013. With a $19.8 billion market cap, that is a large enough amount of stock that it can easily handle it. Corning also might be able to boost its buybacks ahead if it opts to not buy other companies. As of June 30, 2011, the company had some $4.6 billion in cash and equivalents, almost $1.75 billion in short-term investments, and it listed another $5 billion in long-term investments. Its net tangible assets were also listed as being $20.37 billion, so the company is trading under its tangible book value.
This company can quite easily pay this higher dividend. It could have even raised the payout more on the surface. The company might also be able to repurchase even more stock.
The company already fessed up that business is weak and we have already seen weak TV indications for holiday sales. Rather than whining, Corning’s management decided to get shareholder-friendly during hard times.
JON C. OGG
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