Two years after it slashed its dividend and began selling off major properties worldwide, Dallas-based TXU Corp. last week hiked its dividend by 350%, raised its earnings forecast for the next two years and increased its share buyback program.
TXU raised its quarterly dividend to 56.25 cents/share from 12.5 cents. The new policy sets the dividend at an annual rate of $2.25, with an expectation of 5% annual dividend growth. TXU said its decision was the result of its completion of a “Phase Two” performance improvement review, and the dividend policy review announced by the company in September.
Two years ago, TXU slashed its dividend 80% as it moved to build liquidity in its North American operations (see NGI, Oct. 21, 2002). TXU began selling all of its European assets at that time, including its core UK assets. When the dividend cut became news, TXU’s shareholders sold more than 29 million shares and dropped the stock as low as $10.10. It also was downgraded by the major credit ratings services.
TXU initiated its three-phase strategy earlier this year to restructure and improve the performance of its business. Phase One, its restructuring phase, will “rationalize, restructure and restore financial strength to the company through a set of integrated transactions and profitability restoration initiatives.” Phase One, which involves asset sales, is “essentially complete,” the company said, “although TXU anticipates continued restructuring activity through 2004 and “perhaps” through 2005.
Phase Two, focused on performance improvement, is to “strengthen the core businesses and drive performance improvements through applying high performance industrial company practices and standards.” In Phase Three, its long-term capital allocation and growth phase, TXU will discuss how to allocate capital and grow. TXU said it would take the “balance of 2005 to adequately address Phase Three.”
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