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Interpreting Baxter’s Recent Dividend Announcement

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BAX’s latest dividend announcement

On November 14, 2017,  Baxter International (BAX) announced a quarterly dividend of $0.16 per share, payable on January 2, 2018, to shareholders of record as of December 1, 2017. This dividend implies a ~23% rise from the $0.13 per share quarterly dividend it paid in 3Q17.

The indicated annual dividend rate for Baxter International comes in at $0.64 per share. Its dividend yield now stands at ~1.3%.

On November 27, 2017, peers Abbott Laboratories (ABT), Zimmer Biomet Holdings (ZBH), and Stryker (SYK) had dividend yields of 1.9%, 0.83%, and 1.1%, respectively. The iShares Russell 1000 Value ETF (IWD) has ~0.24% of its total holdings in MDT.

BAX’s capital allocation strategy

Baxter International spun off its biosciences division into Baxalta (BXLT) in July 2015. The company targeted a steady net-debt-to-EBITDA (earnings before interest tax depreciation and amortization) ratio of ~2x after the acquisition.

Baxter now has a net-debt-to-EBITDA ratio of slightly below zero. After the spin-off, the company targeted a long-term dividend payout ratio of 35% of adjusted net income. With the current dividend payout ratio of Baxter International at 34.4%, the company is on the right track to achieve its targets.

Meanwhile, Baxter has been committed to returning value to its shareholders through consistent dividend payments, share repurchases, and investments in M&As (mergers and acquisitions).

Baxter International bought back shares worth $180 million in 3Q17. In November 2016, the company had added ~$1.5 billion to its authorized share repurchase program. The company bought back ~$4.7 million shares for ~$275 million in the first nine months of fiscal 2018. As of September 30, 2017, its remaining share capital authorization limit is $1.4 billion.

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