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Lincare Holdings: New Dividend Is a Breath of Fresh Air

Published Tue, 22 Jun 2010 11:11:56 -0400 on Seeking Alpha

On Monday afternoon, Lincare Holdings (LNCR) announced that they will begin disbursing some of their cash to shareholders in the form of a 20 cent regular quarterly dividend. The Clearwater, FL company’s primary business is supplying oxygen therapy services and other medical equipment/supplies to mostly elderly patients. The company provides its services to over 750,000 patients with chronic obstructive pulmonary diseases such as asthma or emphysema. The company has been on an absolute tear over the last twelve months advancing nearly 130%, and a 3:2 split just took effect last week. The stock has extended that momentum rising 7.5% on heavy volume following the dividend initiation. Lincare received an upgrade from analysts at Deutsche Bank today, and certainly this will make the stock far more attractive to income-oriented investors. The implied yield of the $.80 annual dividend on yesterday’s closing price would pay investors 2.6% annually, which is nothing to be ashamed off. This does represent a sizeable portion of their expected earnings for 2010, and based on current estimates the payout ratio comes in above 42%. With that said, we do not anticipate the company will have trouble meeting such commitments as it has a strong balance sheet and is growing earnings per share at a quick pace (consensus analysts’ estimates show 39% growth this year and then leveling down to 13% growth in 2011). As their products are most often used by aged patients, there are some encouraging demographic trends as the baby-boomer generation approaches retirement years. We think it is reasonable to assume high single-digit revenue growth for Lincare for the foreseeable future, aided by their competitive position and a population that is not only aging but living longer as well.... Read more


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