LPL Financial just widened the gulf between itself and other competitors after announcing a $2 special dividend payout to shareholders slated for May, and plans to initiate smaller quarterly payments thereafter, industry observers said.
LPL Financial refinanced its existing $1.3 billion of senior secured credit facilities, extending the terms on two term loans by about two years. It will use the proceeds to fund a one-time special dividend of $2 per share on May 25, totaling about $222 million on shares of outstanding common stock.
After May, investors holding LPL Financial’s common stock can expect regular quarterly dividend payments, initially of up to $0.12 per share, according to the company.
“All stockholders receive the special cash dividend, and many are financial advisors and management, so this is a bit of a bonus,” according to Chip Roame, managing partner at Tiburon Strategic Partners. “This seems like a terrifically sophisticated move to me, hardly typical. It’s good evidence of solid financial management. Second, I’m impressed at how they are using the savings.”
The one-time dividend plus the ongoing payouts are strong signals to the market that LPL Financial has enough cash to fund current operations and expected future acquisitions, Roame says. He added that the move demonstrates a financial strength similar to that of Apple. On March 19, Apple announced plans to give investors a dividend of $2.65 per share, and buy back about $10 billion in shares over three years beginning later this year.
Interest rates on the new facility are low, at 5% a year for the first and second years on the new $735 million term loan A. The $615 million term loan B will pay down at 1% a year, with the balance due on maturity. The company will also have a revolving credit facility with a capacity of $250 million, but the company had not tapped into it when the credit line was finalized.
“It is a reflection of the stature we hold, the talent we have on our team, and the relationships we have with our advisors,” says Robert Moore, chief financial officer of LPL Financial. The move also underscores two points about LPL currently, Moore says. The firm manages its capital well enough to pay dividends to common shareholders, and it is willing to reinvest its profits in ways that benefit advisors and shareholders. LPL has cash on hand of $300 million, according to Moore.
“It speaks to the quality of the investments we have made in what has long been the singular focus of our business: providing financial advisors and institutions with the technology and services they need to serve the large and growing market for independent and conflict-free investment advice,” Mark Casady, chairman and CEO of LPL Financial said in a statement.
Shares of LPL (LPLA) were up 0.87% at $38.27 during Monday trading.
Donna Mitchell writes for Financial Planning.