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Strategic Analysis of Dividend Growth and Buyback Impact on Market Valuation

This analysis explores the implications of a $750 million share buyback authorization on dividend growth and market valuation. It evaluates the projected FY 2012 EPS performance, indicating potential share price adjustments based on insider buying networks and market dominance. The discussion highlights significant risks including diminishing margins and potential impacts on dividend sustainability. Market dominance is exemplified through comparisons with competitors, underscoring the importance of brand recognition in valuation strategy.

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Strategic Analysis of Dividend Growth and Buyback Impact on Market Valuation

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  1. 2/19/2013 Ryan Lumb Rob Karpinski

  2. Dividend Growth

  3. Dividend Growth

  4. Share Buyback • $750 Million share buyback authorization • If fully employed, FY 2012 EPS of $1.75 would have essentially equaled $1.98 • Given the same multiple, this would equate to a $16.75 share price • 17% non-performance related upside potential

  5. Insider Buying

  6. Network Affect “The classic example is the telephone. The more people own telephones, the more valuable the telephone is to each owner.”

  7. Market Dominance “For every McDonald's restaurant, there are more than 15 Western Union vendors. Additionally, Western Union processes about four times the transactions of its closest competitor” - Brendan Mathews

  8. Brand Recognition

  9. Valuation

  10. Valuation

  11. Strategy • Market Dominance Strategy • Monitor Points • Significant Loss in Market Share • Margins diminish greatly (Ex. 28%  under 10%) • Any Decrease to Dividend

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