##{"id":59971,"date":"2012-05-21T11:08:54","date_gmt":"2012-05-21T01:08:54","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2012\/05\/21\/resmed-announces-dividend-payments\/"},"modified":"2012-05-21T11:08:54","modified_gmt":"2012-05-21T01:08:54","slug":"resmed-announces-dividend-payments","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2012\/05\/21\/resmed-announces-dividend-payments\/","title":{"rendered":"ResMed Announces Dividend Payments"},"content":{"rendered":"

\n\t – ResMed<\/span> announces the introduction of dividends
\n\t – Yield viewed as a positive for some investors
\n\t – Move also seen as a sign of fewer growth options
\n\t <\/strong><\/p>\n

\tBy Chris Shaw<\/p>\n

\n\tHaving previously resisted the idea of paying out funds to shareholders, sleep disorder group ResMed<\/span> ((RMD<\/span>)) last week surprised the market to some extent by announcing it would commence paying dividends from the first quarter of 2013.<\/p>\n

\n\tThe payout will stat at US17c<\/span> per share of common stock, which RBS<\/span> Australia estimates will translate to a payment of around 6.9c per share in Australia. Assuming a full year dividend of US68c<\/span> the payout would be a ratio of around 35%.<\/p>\n

\n\tThe reaction to the dividend announcement by brokers covering the stock has been mixed. Deutsche Bank is generally positive, viewing the announcement as evidence cash generation for ResMed<\/span> remains strong and company earnings are sustainable.<\/p>\n

\n\tCiti<\/span> has similarly reacted positively to the news, seeing the commencement of dividends as an attraction for new shareholders who avoided the stock given a lack of yield and a means for the company to put excess capital to use. The combination of dividends and further share buybacks<\/span> should be a positive in Citi's<\/span> view.<\/p>\n

\n\tBA Merrill Lynch also sees some positives in that the dividend is a tangible unlocking of ResMed's<\/span> balance sheet, which is healthy given a net cash position of $540 million as of the third quarter of this year and around US$80 million in free cash flow each quarter.<\/p>\n

\n\tBut RBS<\/span> took a more neutral view, suggesting some investors will be positive on the move as it is a case of management acknowledging the company has more money than it needs, while also suggesting other investors may take the view the move to dividend payments is a sign ResMed's<\/span> business is maturing and growth options are fading. UBS similarly saw a split reaction to the dividend news as likely.<\/p>\n

\n\tFactoring the dividend into broker models results in minor changes to earnings estimates, which translates to modest changes in price targets. The FNArena<\/span> database shows a consensus target for ResMed<\/span> now of $3.57.<\/p>\n

\n\tWhat hasn't changed is broker ratings, the database showing ResMed<\/span> is rated as Buy and Hold four times each. Citi<\/span> sums up the Buy argument by noting ResMed<\/span> currently trades on a 12-month forward earnings multiple of 14 times, which is considered attractive given forecast earnings per share (EPS) growth of 13% this year, 30% in FY13<\/span> and 20% in FY14<\/span>.<\/p>\n

\n\tRBS<\/span> argues the value in ResMed<\/span> isn't as attractive based on normalised<\/span> EPS growth forecasts of around 8% this year, 14% in FY13<\/span> and 7% in FY14<\/span>. With global medical technology companies offering three-year EPS growth of about 15% and trading on more attractive earnings multiples than ResMed<\/span> at present, RBS<\/span> suggests upside from current levels is limited.<\/p>\n

\n\tBA-ML sides with RBS<\/span>, suggesting while the addition of a yield is a positive for ResMed<\/span> shareholders the total return is still not enough to justify a more positive rating than the broker's current Neutral recommendation.<\/p>\n

\n\tShares in ResMed<\/span> as at 10.50amare down 3c<\/span> at $3.23 in a stronger overall market. Over the past year ResMed<\/span> has traded in a range o $2.36 to $3.44, the current share price implying upside of around 10% relative to the consensus price target in the FNArena<\/span> database.<\/p>\n

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\n\tFind out why FNArena<\/span> subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"