ResMed
Recommendation
With cash piling up on its balance sheet, we initiated coverage on sleep apnoea treatment company ResMed recently in ResMed v Cochlear a two horse race on 20 Mar 12 (Hold – $3.02). Despite significant research and development and share buyback programs, ResMed still has more cash than it knows what to do with. As at 31 March, the company had net cash of $US540m on its balance sheet.
So it makes sense that ResMed has decided to commence paying dividends at US$0.17 per quarter from the first quarter of the 2013 fiscal year. This represents a payout ratio of less than 40% based on forecast 2013 earnings, so the company will still retain plenty of cash for reinvestment in the business.
For Australia shareholders, this equates to 1.7 US cents per quarter, or 6.8 US cents a year. Dividends will be unfranked, and will be converted to Australian dollars at the relevant exchange rate on the record date.
ResMed also confirmed that founder Peter Farrell will remain in the chief executive officer’s role until the end of calendar 2013. Succession planning hasn’t been the company’s strong point in the past, as Farrell had to resume the role after the former chief executive resigned. This period will give the board time to identify suitable internal candidates, although there is some chance an external appointment will be made.
The stock is almost unchanged since 8 May 12 (Hold – $3.27), while the recommendation remains HOLD.