Reynolds Stock Split a Sign of Confidence, According to Professor Michael Lord

10.16.2010 Article, General, School News

Reynolds to split stock, raise quarterly dividend
Reposted from Winston-Salem Journal | by Richard Craver

Yesterday’s announcements of two Reynolds American Inc. financial decisions nearly grabbed the spotlight away from the surprising decision by Susan Ivey to retire as the company’s top executive.

Reynolds will conduct a stock split in which registered shareholders as of Nov. 1 will be given one additional share of common stock for each share they own. The new shares will be issued Nov. 15.

Analysts had expected that Reynolds would either conduct a stock split or pursue a major purchase this year. It is the second two-for-one stock split since the company became publicly traded in 2004. After the split, there will be about 583 million shares of common stock outstanding.

Reynolds also said its quarterly dividend would increase from 45 cents to 49 cents a share. On a pre-split basis, the dividend increase is 32 cents a share, from $3.60 to $3.92, on an annualized basis. The dividend will be payable Jan. 3 to shareholders registered Dec. 10.

Christopher Growe, an analyst with Stifel Nicolaus, said he viewed all of the Reynolds developments as positive.

“While we admit to being modestly surprised at Ms. Ivey’s retirement, we believe she leaves the company in very capable hands,” Growe said.

The Reynolds board of directors elected Daniel “Daan” Delen as president-elect and chief executive-elect, and as a board member, effective Jan. 1. The board elected Thomas Wajnert as a nonexecutive chairman, effective Nov. 1. He has been the board’s lead director since 2008.

Growe said that the dividend increase shows “a real confidence in the earnings growth profile of the industry, and one we believe will continue to plod along at least at a mid-single digit rate.”

Michael Lord, an associate professor of management at Wake Forest University, said that the stock split also is a sign of confidence in its future.

“It’s not as likely that they would do a split if they anticipated a lot of volatility in the near or midterm future,” Lord said.

Tony Plath, a finance professor at UNC Charlotte, said that splitting the share price — which rose $1.80, or 3 percent, to close at $61.77 yesterday — makes Reynolds’ stock accessible to more investors.

Growe said that the stock split doesn’t have to keep Reynolds from making a major deal.

“Lorillard is still a likely takeover candidate for Reynolds,” Growe said. “While we cannot speculate on timing of such a transaction, we believe it could happen in the near future.”