Xerox Dividend: Cause For Optimism

Xerox (XRX) announced the restart of a quarterly dividend after a five year hiatus. Xerox also announced the return of its debt to an investment grade rating. Clearly there is cause for optimism. Lets look at a few things.

The stock dropped substantially in the summer and has not really recovered. The dividend is payable at the end of Jan 08 to holders of record as of Dec 31, 07. This should block year end tax selling which must look awfully attractive in this kind of market.

Since launching its stock buyback program in October 2005, Xerox has repurchased about 129 million shares to date, totaling $2 billion of its $2.5 billion program. This is approximately equal to what their net earnings have been for approximately the same period.

The long term debt to book equity is approximately 1:1. You cannot chew up your cash in this fashion for very long without running into some difficulty. Sure, Xerox looks promising, but they cannot afford to squander valuable cash resources to pop the stock short term. The earnings story needs to start carrying the price, not a stock buyback program.