Daimler CFO Mulls Dividend Rise to Pare Growing Cash Pile
“When we do come to a point where we have more cash than deemed necessary, our preferred option would be to upgrade our dividend payout and the pay-out ratio,” Chief Financial Officer Bodo Uebber said in an interview. “Sustainable benchmark dividend payouts are more attractive to our shareholders than one-off stock buyback programs.”
The automaker proposed a 2010 dividend of 1.85 euros per share on Feb. 16 after not paying one the previous year to conserve cash. Daimler doesn’t plan to restart a share repurchase plan it indefinitely suspended in October 2008 in the midst of the financial crisis, he said.
The world’s largest truckmaker will guard liquidity this year following political turmoil in the Middle East and the earthquake in Japan, he said. Daimler is focusing resources on new plants and models such as the A-Class compact and will take a “disciplined” approach to acquisitions, including the pending offer for engine maker Tognum AG (TGM), Uebber said.
“The amount of cash that we have on hand represents a reasonable cushion for this year,” Uebber said March 14 at the manufacturer’s headquarters in Stuttgart, Germany. “The tragic situation in Japan and the recent events in North Africa show just how unpredictable the world is.”
Daimler rose as much as 93 cents, or 2.1 percent, to 46.21 euros and was up 0.8 percent to 45.66 euros as of 1:36 p.m. in Frankfurt trading, valuing the company at 48.6 billion euros ($67.9 billion).
Daimler’s cash from industrial operations surged 65 percent to 11.9 billion euros in 2010. The company is projecting “significantly” higher profit this year as an upgraded C-Class sedan and revamped SLK roadster boost Mercedes-Benz deliveries.
“I can see their desire to have an operational cash buffer,” because of rising research spending and volatile markets, said Heenal Patel, a London-based analyst with Standard & Poor’s Equity Research, who has a “hold” rating on the stock. “Automotive companies are being a lot more conservative and going for stability.”
Daimler’s planned 2010 dividend totals 1.97 billion euros, or 42 percent of net income of 4.67 billion euros. Bayerische Motoren Werke AG (BMW), the luxury-car leader, plans to pay out 26 percent of last year’s net income and is targeting dividends of 30 percent to 40 percent of annual profit.
Daimler has set aside 20 billion euros over the next two years to invest in research, upgrading factories and developing new products like an electric version of the SLS supercar. The budget was increased from 15 billion euros in its previous two- year plan, as the company builds a new small-car factory in Hungary and doubles its lineup of compact models to four by next year.
“The focus for investment is on organic growth, rather than mergers and acquisitions,” Uebber said. “Cash makes mergers and acquisitions possible, but it isn’t a reason to do it.”
Daimler, which declined to pursue Fiat SpA’s Iveco truck unit last year, “will continue to take a disciplined approach to acquisitions,” he said.
The measured M&A strategy holds in the ongoing pursuit of Tognum, Uebber said, reiterating that Daimler and Rolls-Royce Group Plc (RR/) don’t plan to raise their joint “fair value” bid for the company that makes diesel engines for ships, tanks, and power generators.
Daimler and London-based Rolls-Royce offered to buy Tognum in a deal valuing the heavy-duty engine maker at 3.2 billion euros. The bid is 30 percent higher than the Friedrichshafen, Germany-based company’s closing price on March 4, the last trading day before the prospective buyers expressed interest. The joint bidders haven’t yet submitted the offer to German regulators.
The stock traded today as high as 5.1 percent above the offer price of 24 euros per share. Tognum hasn’t agreed with Daimler on a price.
While preparations for the offer are continuing, “we will nevertheless closely monitor the situation, given the high volatility in the capital markets,” Uebber said.
Daimler has made a series of investments since exiting Chrysler in May 2007. The carmaker has bought stakes in Russian truckmaker OAO Kamaz and electric-car maker Tesla Motors Inc. It also swapped shares with Renault SA and Nissan Motor Co. to secure a small-car partnership and bought a Formula One racing team.
The Tognum purchase would represent Daimler’s biggest deal since buying a 34 percent stake in Mitsubishi Motors Corp. in 2000, according to Bloomberg data. The company has since sold the stake in the Japanese carmaker.
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