Xerox Resumes Dividend, Sees Profit Growth

Xerox said on Monday that it would pay its first quarterly dividend since 2001 and gave a strong earnings outlook for the next two years, driven by demand for digital color printing and services.

Shares of the office equipment company, which had scrapped payouts in 2001 as it tried to return to profitability, rose more than 2 percent on Monday after it set a quarterly dividend of 4.25 cents a share.

Xerox's headquarters in Stamford, Connecticut.
Douglas Healey
Xerox's headquarters in Stamford, Connecticut.

Xerox , the world's biggest supplier of office printers and related services, said the reinstated dividend reflected the health of its business.

"We've significantly strengthened our financial position, providing flexibility for investing in our business and delivering shareholder returns," Xerox Chief Executive Anne Mulcahy said in a statement.

Xerox has bet on the introduction of color printers, along with lucrative long-term supply and service deals to its commercial printing customers. Gross profit for color printed pages is five times greater than from black-and-white.

The dividend is payable on Jan. 31 to shareholders of record on Dec. 31.

"We believe this is a big step for the company in its turnaround," analyst Shannon Cross of Cross Research said in a note. "We think this move reflects the board's confidence in the stability of cash flow generation and is an important statement in light of recent questions surrounding impacts to tech from a potential slowdown in the economy."

Cross estimated the dividend would cost Xerox about $160 million annually, and she expects the company to raise the payout over time "as cash flow generation holds steady to increases."

The Stamford, Connecticut-based company, which is hosting an analysts' day in New York on Monday, also forecast profit of $1.31 to $1.35 per share for 2008 and $1.45 to $1.50 for 2009.

The analysts' average forecasts are $1.31 for 2008 and $1.43 for 2009, according to Reuters Estimates.

Xerox reiterated that it saw 2007 earnings per share of $1.18 to $1.20.

Stock Rises

In 2001, Xerox had lost its luster as a technology innovator, and its stock price had withered because of speculation about accounting irregularities and growing competition in the imaging industry. In July of that year, the company eliminated its quarterly dividend for the first time since its inception in 1948.

News of the resumption could renew investor interest in Xerox shares, which in the past week have slipped to near 52-week lows. Analysts have also cited prospects for new products, such as the company's solid-ink system, which promises to slash the cost of color printing for high-volume users willing to pay more initially for machines.

Experts credit Xerox with impressive additions to its office printer lines, solid profitability and improved market share. But analysts have been disappointed by tepid sales gains -- 2006 revenue of $15.9 billion was up only about 3 percent from 2003.

Analysts on average expect a 7 percent rise in 2007 annual revenue from 2006, according to Reuters Estimates.

Mulcahy added that the company would continue buying back stock, building on $2 billion in share repurchases in the last two years.

Xerox shares were up 37 cents, or 2.3 percent, at $16.19 in morning New York Stock Exchange trade.