Two large companies on Thursday announced sharp increases in their cash dividends and said they were motivated in part by the new tax law, which slashed tax rates on dividends.
Reston, Va.-based SLM Corp., the nation’s biggest provider of student loan financing, said it doubled its quarterly dividend to 51 cents a share from 25 cents.
Flagstar Bancorp of Troy, Mich., said it too doubled its quarterly dividend, to 10 cents a share from 5 cents.
“Earnings not reinvested in the business belong in the shareholders’ pockets,” said Albert L. Lord, SLM’s chief executive. “Increasing our dividend is the right thing to do, and the signing of yesterday’s tax bill makes it the right time.”
At Flagstar, Chairman Thomas J. Hammond said the dividend boost, “coupled with the recent tax changes, should provide additional value to our shareholders.”
President Bush on Wednesday signed into law a bill lowering income tax rates and reducing the maximum tax on dividend income to 15% from 38.6%. Many analysts expect the tax cut to put pressure on companies to raise their cash payouts to shareholders.
But at many companies, boards typically have made dividend changes once a year, and often in the same quarter each year. That could mean that any reaction to the tax changes will be delayed at some firms.
McGrath RentCorp of Livermore, Calif., which provides modular buildings for rent, this week declared a quarterly dividend of 20 cents a share, the same as in the first quarter. Tom Sauer, the firm’s chief financial officer, said McGrath’s board historically has changed the dividend in the first quarter of each year. The payout was raised 2 cents a share last quarter, he said.
SLM and Flagstar made their announcements after markets closed Thursday. SLM shares eased 33 cents to $115, and Flagstar rose 21 cents to $19.23, both on the New York Stock Exchange.
At their new dividend rates and at Thursday’s closing stock prices, SLM shares have an annualized yield of 1.8% and Flagstar’s yield is 2.1%.
The average dividend yield of stocks in the blue-chip Standard & Poor’s 500 index is 1.7%.