Carnival Hikes Dividend - Analyst Blog

Miami-based Carnival Corporation & plc (CCL) recently announced its decision to hike quarterly dividend by 15 cents to 25 cents per share. This translates into a massive 150% increase from the prior dividend. The increased dividend will be paid on March 11, 2011, to stockholders of record on February 18, 2011. This takes the annual dividend yield as of January 20, 2011, to 2.17%. 

A year-ago, Carnival resumed its quarterly dividend of 10 cents, which was much lower than its prior pay-out of 40 cents a share, following the emergence of leisure sector recovery. Earlier in October 2008, Carnival announced the suspension of payment of its annual dividend in the wake of an economic recession and high cost of raising new capital.  

Over the last five years, Carnival's dividend declined at a rate of 12.9%; a much faster pace than the industry average growth rate of 5.4%. Carnival's forward annualized dividend yield of 2.17% surpassed the industry average of 1.09%.

At the end of fourth quarter, Carnival's cash balance stood at $429 million compared with $538 million in the year-ago quarter. We believe the company has enough cash and cash equivalents to provide optimum shareholder value. Apart from dividend payment, Carnival decided to step up shareholder value through a share buyback program. 

With lesser ship additions in the next few years, free cash flow is expected to rise substantially in 2011 and beyond. Capital expenditures for 2011 are expected to be $2.6 billion, down from $3.6 billion in 2010. For 2011, operating cash flow for 2011 is estimated to exceed approximately $4 billion, resulting in free cash flows of $1.4 billion.

Holders of Carnival Corporation common stock and Carnival plc ADS (American Depository Shares) will receive the dividend in U.S. dollars. The dividend for Carnival plc ordinary shares will be payable in U.S. dollars or sterling.

In the absence of instruction to the contrary, holders of Carnival plc ordinary shares will automatically receive the dividend in sterling. Dividends payable in sterling will be converted from U.S. dollars at the exchange rate quoted by the Bank of England at 12 noon on March 1, 2011.

Carnival is the world's largest cruise and vacation company in the United States and internationally, with 98 ships and 10 new ships scheduled for delivery between March 2011 and May 2014.

Carnival's strongest competitor, Royal Caribbean Cruises Ltd. (RCL), does not pay dividends. While we do not expect Royal Caribbean to pay a dividend in the near future, we believe that an increase in dividend payment affirms Carnival's optimistic outlook and provides a competitive advantage over its peer. The more than doubled new dividend depicts that the company is heading toward strong future growth.

 
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