KLA-Tencor Corporation (KLAC), leading manufacturer of process control equipment, has announced its decision to hike quarterly dividend by 5 cents to 50 cents per share. This translates into an 11.0% increase from the prior dividend of 45 cents per share. The increased dividend is expected to be declared in Aug 2014.
Additionally, the company increased its stock buyback program by up to 13 million shares. The company's share repurchase program, which is now valued at over $1 billion, is expected to be completed over the next 12 to 18 months.
The strength of KLA’s business model is reflected in its strong cash generation capabilities and commitment to return value to shareholders. We believe that continued share buybacks and dividend hikes will inspire investors’ loyalty through higher returns from the stock.
KLA’s strong balance sheet and cash flows provide financial flexibility in matters of incremental dividend, share repurchases and strategic acquisitions. During the last concluded quarter, KLA spent $59.9 million on share repurchases and $74.8 million on dividends. The cash and short-term investments balance was $3.03 billion, flat with the previous quarter. The debt to total capital ratio, including long-term liabilities and short-term debt, was 17.0%. We remain encouraged by KLA’s strong cash position and its ability to service its long-term debts.
KLA reported decent third-quarter results, with both revenues and earnings surpassing our expectations. We note that the underlying demand remains strong given the high requirement for more efficient manufacturing processes and the preference for mobile. However, management provided a weak guidance, given order pushouts into the second half of 2014.
Currently, KLA shares carry a Zacks Rank #3 (Hold). Other stocks worth considering in the same sector are Advanced Micro Devices, Inc. (AMD), Avago Technologies (AVGO) and Diodes Inc. (DIOD). All these stocks sport a Zacks Rank #1 (Strong Buy).
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