The global economy is enduring one of the worst possible hits in recent times from the coronavirus pandemic, with countless innocent lives lost and businesses held hostage to an invisible and seemingly innocuous yet deadly virus. Stringent lockdown restrictions have virtually crippled business operations and brought the economy to a standstill. More than 33 million people have reportedly lost their jobs in the past two months in the United States alone, while more than 27 million are filing for unemployment benefits to sustain the economic hardships.
As the corporate sector scrambles for cash to weed off the liquidity crisis through furloughs, layoffs and cost-cutting measures driven by a reduction in discretionary expenses, various firms are looking beyond other short-term funding avenues, such as revolving lines of bank credit, to bridge temporary cash shortfalls. One of the most common and widely followed trend to perk up the liquidity position during the recessionary conditions is dividend cut or suspension of dividend payment until the overall situation improves. Although a bulk of the firms across diverse sectors has increasingly followed the drift, a handful has chosen to swim against the tide and continue rewarding shareholders with dividend hikes.
Let us have a broad overview of four such stocks and gauge the underlying metrics that reflect their inherent financial strengths.
Days before the release of second-quarter fiscal 2020 results, Qualcomm Incorporated QCOM announced a 5% year-over-year hike in its quarterly dividend payout to 65 cents per share or $2.60 on an annualized basis. The current hike reflects the inherent financial strength of the company and strong cash flow generated from continued focus on high-margin businesses and healthy execution of operating plans. Qualcomm is one of the largest manufacturers of wireless chipset based on baseband technology. The company is focusing on retaining its leadership in the chipset market and mobile connectivity with several technological achievements and innovative product launches.
Despite a challenging macroeconomic environment triggered by the coronavirus pandemic, Qualcomm reported solid second-quarter fiscal 2020 results, with healthy year-over-year top-line growth primarily driven by the ramp-up in 5G-enabled chips. It generated $1,083 million of net cash from operating activities during the quarter compared with $794 million in the year-ago quarter. The company paid out cash dividends totaling $705 million or 62 cents per share and repurchased 20 million shares for $1.6 billion. Qualcomm has a long-term earnings growth expectation of 18.4%. It delivered a positive earnings surprise of 10.8%, on average, in the trailing four quarters and has a VGM Score of B. Qualcomm currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In concurrence with the first-quarter 2020 financial results, Cogent Communications Holdings Inc. CCOI hiked its dividend for the 31st consecutive quarter, which indicates its robust cash flow position. The company increased its quarterly dividend to 68 cents per share for a year-over-year increase of 13.3%. Being the leading provider of high-speed Internet access, Cogent benefits from cost-effective operations. The company offers a streamlined set of products, which help eliminate redundant costs and provide greater pricing flexibility. It incurs relatively lower costs compared with competitors owing to the usage of Internet routers without additional legacy equipment.
As of Mar 31, 2020, the company had $375.1 million in cash and equivalents with total current liabilities of $90.1 million. Although the company’s current liabilities have remained flat sequentially, it has a favorable cash and cash equivalents position. This suggests that Cogent is likely to pay off its short-term financial obligations in the near term. The times interest earned has improved steadily in the past few quarters to 1.9. This indicates that this Zacks Rank #3 stock is more likely to clear its debt obligations in the near term. Its dividend payout rate has increased to 276.9% compared with 268.1% in the prior quarter. This suggests that the company is likely to reward its shareholders with lucrative dividend payments in the near term as well. Cogent has a long-term earnings growth expectation of 14.9% and delivered a positive earnings surprise of 12.3%, on average, in the trailing four quarters.
Last week, FactSet Research Systems Inc. FDS announced a 7% year-over-year hike in its quarterly dividend payout to 77 cents per share, which marked the fifteenth consecutive year of dividend increase for this leading provider of integrated financial information, analytical applications and industry-leading service for the global investment community. The company primarily derives revenues from subscriptions to products and services such as workstations, analytics, enterprise data, research management and trade execution, which makes it relatively immune to the vagaries of the market.
FactSet exited second-quarter fiscal 2020 with cash and cash equivalents of $343.5 million compared with $336.2 million in the previous quarter. Long-term debt of $574.3 million was roughly flat year over year. In the fiscal second quarter, this Zacks Rank #3 stock generated $99.7 million of cash from operating activities and capital expenditure was $25.1 million. Free cash flow was $74.6 million. FactSet has a long-term earnings growth expectation of 8.5%. It delivered a positive earnings surprise of 6.5%, on average, in the trailing four quarters and has a VGM Score of B.
In concurrence with third-quarter fiscal 2020 financial results, Cardinal Health, Inc. CAH has announced a 1% increase in quarterly dividend to 48.6 cents per share. Large-cap, diversified healthcare distributors such as Cardinal Health are relatively insulated from macroeconomic uncertainty and a weak economy. Cardinal Health is one of the largest distributors of pharmaceutical and medical supplies. It has a diversified product portfolio, which is a hedge against the risk of a sales shortfall in testing times.
The company’s generics business continues to show healthy growth, supported by a solid customer base, a significant scale of operation and the competence to source products from a complex and global supply network. Cardinal Health has rationalized the number of generic suppliers. In addition, the company has expanded relationships with generic manufacturers by offering several benefits like higher service levels, greater clarity on generic cost of goods sold and a more consistent product supply with fewer disruptions. Despite the virus outbreak, in the fiscal third quarter, this Zacks Rank #3 stock generated $1,676 million of cash from operating activities compared with $1,480 million in the year-ago period. Cardinal Health has a long-term earnings growth expectation of 4.4%. It delivered a positive earnings surprise of 18.2%, on average, in the trailing four quarters and has a VGM Score of A.
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