When we look at the luxury jewelry market of US-traded shares, Tiffany & Co. stands above companies like Harry Winston Diamond Corporation (NYSE: HWD), Signet Jewelers Limited (NYSE: SIG), and Zale Corporation (NYSE: ZLC). Zale’s has been losing money and is not in a position to pay a dividend, but Signet last had a dividend in 2008 and Harry Winston last paid a dividend in early 2009.
When you annualize this to $1.16 per year and use roughly a $70.00 stock price it comes to a dividend yield of 1.65%. This might not sound like a super-high dividend, but some of that is because Tiffany & Co.’s stock has a 52-week range of $35.81 to $70.26. Its market cap is now $8.9 billion and Thomson Reuters has a consensus price target of only $68.75.
With shares currently above the consensus price target objective, Tiffany’s only real choice was to hike its dividend. Hiking a dividend is much better of a signal to investors than share buybacks. Share buybacks are usually meant to infer that the stock is cheap at the current time, but when companies raise a dividend it is meant to imply that business is going to remain ample to support that payout for years. A company can stop buying stock, but investors generally treat a lowering of dividends with a poor reception.
As far as how $1.16 per year comes out on the math, Thomson Reuters has estimates of $3.32 EPS for its Fiscal January-2012 and $3.79 EPS for its Fiscal January-2013. If Tiffany can come anywhere close to its earnings estimates ahead then it can keep raising its dividends.
JON C. OGG
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