Thursday, October 6, 2011

Corning Ups Net Payout Yield Potential

Always looking for companies with high Net Payout Yields (NPY) potential, Corning (GLW) threw their cap into the ring last night. Remember that NPY is the combination of dividends and net stock buybacks. Stock buybacks continue to be ignored by most investors when considering the yield equation. Top companies only pay out roughly 30% of the yield via dividend these days.

GLW announced that the dividend would be increased 50% and that a stock buyback program of up to $1.5B through the end of 2013. This brings the dividend yield up to a solid 2.5%. With any decent contribution from buybacks, the total yield or NPY could jump into the 5-6% range. Now it needs to jump higher than that to make our portfolio that has many stocks exceeding 10% yields. Though a 5% yield would have to be attractive in this market of low interest rates.

According to the corresponding statement from GLW, lower capital spending in 2012 will drive up cash flow prospects. Accordingly this might signal that most of the buybacks will be a 2012 story. This isn't good for our portfolio's thesis that only invests in companies that actually buy stock, but it does signal future potential considering GLW hasn't bought stock recently if ever (Smartmoney.com only shows the last 5 quarters).

This move also highlights the difference between 2008 and now. GLW is highly leveraged to global growth and instead of burying their head in the sand, it is moving forward with plans to enhance shareholder value. In 2008, company after company lowered dividends which isn't the case this time around.

For more information on our Net Payout Yields model, please visit the Portfolio Management section of our website:


Per GLW PR:

  • declared a 50% increase in the company’s quarterly common stock dividend. Corning’s quarterly dividend will rise to $0.075 per share of common stock held, versus $0.05 per share previously. The fourth-quarter dividend will be payable on Dec. 16, 2011 to holders of record Nov. 16, 2011.
  • The board also authorized a stock repurchase program for purchasing up to $1.5 billion of the company’s common stock from time to time through open market or private transactions. The stock repurchase authorization expires at the end of 2013.     
  • “We believe our future free cash flow prospects are excellent, driven by business performance and lower capital spending starting in 2012, as some major projects are finished. Corning’s board also is committed to using the company’s free cash flow going forward to enhance shareholder returns,” Weeks explained.    


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