Delphi Initiates Dividend to Show Confidence in Business

Delphi Automotive Plc Chief Executive Officer Rodney O’Neal
Delphi Automotive Plc Chief Executive Officer Rodney O’Neal said in an interview last month, “We have not done the dividend, and it’s one that many investors have encouraged us to look at.” Photographer: Scott Eells/Bloomberg

Delphi Automotive Plc, the former parts unit of General Motors Co., initiated a dividend, its first since returning to the public markets after bankruptcy.

Delphi will pay 17 cents a share on March 27 to shareholders of record on March 15, the company said in a statement. The shares rose the most in almost nine months.

Chief Executive Officer Rodney O’Neal said in an interview last month the company was considering paying a dividend, as Delphi weighed priorities for its cash. The company had accomplished three of its four priorities for deploying its capital: share buybacks, achieving investment-grade credit metrics and “opportunistic” acquisitions, O’Neal said in the interview.

“We’ve done three of the four,” O’Neal said at the time. “We have not done the dividend, and it’s one that many investors have encouraged us to look at.” Delphi had $1.1 billion of cash and cash equivalents as of Dec. 31.

Delphi shares rose 78 percent last year after an initial public offering in November 2011 following the Troy, Michigan-based company’s 2009 exit from bankruptcy. O’Neal, 59, has cut expenses and reduced the company’s product lines to 33 from 131. The CEO also has focused on emerging markets and emphasized products such as fuel-injection and active-safety systems sought by consumers and mandated by governments.

The auto-parts maker announced a $750 million share repurchase program in September.

‘Shareholder Value’

“Our strong balance sheet and significant cash flow generation allow us to take this positive shareholder action today,” O’Neal said in the statement. “The initiation of the cash dividend, along with our existing authorized share-repurchase program, continue to reflect our confidence in the business and our continued commitment to enhance shareholder value.”

O’Neal is trying to balance Delphi’s use of cash with its goal of achieving investment-grade ratings. Chief Financial Officer Kevin Clark said last year he expected Delphi to earn such a rating by the end of April 2013. Delphi has a corporate credit rating of BB+, the highest non-investment grade, from Standard & Poor’s Ratings Services.

Delphi’s indicated dividend yield is 1.7 percent based on today’s closing price of $39.73. That compares with a yield of 2.2 percent for the Standard & Poor’s 500 Index after trading today. Delphi joined the index in December.

‘Big Enough’

“This is one more piece of the puzzle on how Delphi’s going to deploy its cash,” Matthew Stover, an auto analyst with Guggenheim Securities in Boston, said in a telephone interview. The yield is “big enough to be meaningful and clearly there’s some room to move the yield higher.”

Delphi’s investors include Elliott Management Corp., Silver Point Capital and Paulson & Co., three of the private equity firms that bought most of the original Delphi.

The company, registered in Gillingham, U.K., rose 4.2 percent today for the biggest gain since May 29. The shares have increased 3.9 percent this year, compared with a 5 percent rise for the S&P 500.

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