HP’s cash flow
Lately, the technology sector has seen many companies announce dividend initiation. In 2013, EMC (EMC), IBM (IBM) and SanDisk (SNDK) announced dividends for the first time. Unlike its peers, Hewlett-Packard (or HP) (HPQ) has paid dividends since 1965. Along with raising the dividend payments, HP has been very consistent in making the dividend payments. SPDR MS Technology (MTK) is the exchange-traded fund (or ETF) that will benefit from HP’s dividend announcement.
The above chart shows the quarterly earnings per share (or EPS) and free cash flow (or FCF) per share.
HP’s annual rate of dividend growth over the past three years, five years, and ten years has been 20.1%, 11.6%, and 5.6%, respectively. HP has been very consistent in raising dividend payments over the years. This is a move that lures investors.
Cash, debt, and cash flow
In 3Q14, the company generated $3.6 billion in cash flow from operations—an increase of 36% year-over-year (or YoY). Out of these cash flows, $881 million has been returned to shareholders in the form of share repurchases and dividends in 3Q14.
As of 3Q14, HP has cash reserves and total debt worth $14.8 billion and $19.8 billion. The company is gradually reducing debt on its books. In 2Q14 and 3Q13, total debt stood at $22.5 billion and $24.75 billion, respectively. $582 million of cash has been spent to repurchase shares of common stock in the open market.
HP’s improving FCF margins allow it to make more investments, debt repayment, share buybacks, and dividends. HP has decent cash reserves on its books. Its debt levels are reduced with each passing quarter. This indicates a favorable scenario for dividend payments to continue.