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Why HP Inc. Could Be a Safe Bet for Investors

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Nov. 22 2018, Updated 9:01 a.m. ET

Delivered on commitments

HP Inc. (HPQ) spun off from Hewlett Packard Enterprise (HPE) three years ago to focus on its core business segments, Personal Systems and Printing. The company has time and again delivered on its financial and operational commitments over the last 36 months.

HP Inc. has managed to consistently outpace the global markets with a focus on innovation and enhanced services and solutions. In the previous article, we saw that HP Inc.’s PC shipments have grown for ten consecutive quarters now—far higher than the negative or flat growth experienced in the global PC market.

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Printing sales were robust in the third quarter

In the third quarter of fiscal 2018, HP’s Printing sales rose 11% YoY (year-over-year) to $5.2 billion. Though the Printing segment accounted for 35% of total revenue, it also roped in 70% of operating profits for the company.

HP’s Printing segment has an operating margin of 16%, far higher than the Personal Systems segment’s margin of 3.9%. Any expansion in Printing sales will result in robust earnings growth for HP.

HP’s Printing business also outperformed the global markets, which grew at 1%. HP’s Printing sales were driven by strong revenue growth in hardware and supplies as well as across strategic areas such as A3, Graphics, Managed Print Services, and Instant Ink. HP’s development of its 3D ecosystem has brought new partners and alliances together, which has resulted in increased product demand.

Shareholder value

HP Inc.’s target was to return 50%–75% of free cash flow to investors in fiscal 2018. The company has returned $2.6 billion in the first three quarters of fiscal 2018, and it’s likely to exceed its target of 75% in fiscal 2018.

HP pays a dividend of $0.64 per share, indicating a dividend yield of 2.8%. The company has increased its payout 7% YoY. Peer companies IBM (IBM), Western Digital (WDC), and Seagate (STX) have dividend yields of 5.4%, 4.4%, and 6%, respectively.

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