PetSmart Shares Rise on Plans for $525 Million Buyback, Dividend Boost

PetSmart PETM, the specialty provider or products and services for pets, announced Monday that it has raised its quarterly dividend 18%. In addition, it has authorized a $525 million share buyback. PetSmart has made the move in an attempt to boost shareholder value, and the 2.5 cent increase to 16.5 cents per share will cost the company roughly $10.8 million per year. The share purchase authorization will commence on June 30 of this year. “The return of excess cash to our shareholders through a combination of dividends and share repurchases reaffirms our commitment to the creation of shareholder value through effectively managing the capital in our business,” said CEO Bob Moran. “We believe the stability and predictability of our cash flow demonstrates the continued strength of our business.” The dividend will be paid on August 10 of this year, and it is equivalent to an annual rate of $0.66 per share. On Wednesday last week, Morgan Stanley initiated coverage on PetSmart with an Overweight rating and $75 price target, with one Morgan Stanley analyst saying that, "We see four drivers of upside to consensus EPS and a bullish view, 1) Stable 3-5% industry growth and PETM modestly increasing share, 2) 7-10% services growth, 3) 100-200 bps of margin leverage from premium/proprietary mix and efficiency, 4) A focus on increasing cash flow and return of capital.” The company has been posting impressive results in recent periods, driven by demand for premium pet foods and hard goods. Even during the recession, consumers were apparently willing to spend money on better-quality products for their pets. On Monday, PetSmart was trading at about $68.30, up roughly 2.6%. Follow me @BCallwood.