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Higher Quarterly Dividends from Solera Holdings

Solera Holdings recently made an announcement that they would be increasing the quarterly dividend by 36 percent, from $0.125 to $0.17 per share. Currently, Solera’s shares are trading at a 1.2 percent dividend yield. Solera Holdings first started paying out dividends around the middle of 2009 and, since then, the dividend payout has been raised by a compound annual growth rate of approximately 28 percent.
This year’s increase is the largest percentagewise in the company’s history but isn’t far off in terms of the size of the raises the company has performed over the past couple of years. Solera is going to need approximately $47 million to fund their dividend payout every year, according to the latest share count, which is about 24 percent of the company’s trailing free cash flow. Thus, analysts expect Solera to keep growing its dividend over time, but they don’t feel the latest increase has anything to do with the company’s merger and acquisition plans.

Solera paying out a larger dividend means that the percentage of free cash flow allocated to acquisitions will be incrementally smaller, but analysts feel that, even after earmarking funds for dividend payouts, Solera will still produce, free cash flow between $150 million and $175 million over the next twelve months. Furthermore, Solera is estimated to have approximately $1 billion in cash on its balance sheet after recently finalizing a debt issuance, which gives the company’s management sufficient funds to carry out various acquisitions. However, it’s difficult to determine exactly when the company will be engaging in mergers and acquisitions.

At the time of the debt issuance, the company’s management said that they were carrying out negotiations for a prospectively significant acquisition, but nothing has been stated officially so far. Analysts believe that Service Repair Solutions, which is a private company, seems to be the type of acquisition Solera might have been targeting, but said firm was recently purchased by a private-equity company. It isn’t known whether Service Repair Solutions was the company Solera was interested in, but analysts believe that Solera is considering a number of different opportunities, such a recent acquisition the company completed in Turkey. It should be noted that the latter was a relatively small deal, both in acquisition price and prospective revenues.

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