NEW YORK Dec 10 TD Ameritrade Holding Corp
on Monday declared a special dividend of 50 cents a
share to help shareholders beat expected tax hikes next year,
but analysts said the action also underscored the discount
broker's limited ability to deploy its excess cash.
Just weeks after raising its regular quarterly dividend by
50 percent to 9 cents per share, the Omaha, Nebraska-based
discount broker said it will make the special payment on the
last day of the month to shareholders of record as of Dec. 21,
2012. The one-time dividend should deplete the company's cash by
just under $275 million.
Given the recent dividend hike announcement and TD
Ameritrade's plan to pay off $250 million of debt this month,
the special dividend mildly surprised analysts.
They disagree on what it implies about the company's hunger
to make acquisitions, but said the one-time payment will not
hinder its ability to replenish cash quickly to meet its goal of
having $500 million to $1 billion of excess liquid assets on its
After the special dividend and the debt buyback, TD
Ameritrade should have about $532 million of cash, estimated
Richard Repetto, an analyst at Sandler O'Neill & Partners.
Citigroup analyst William Katz said in a note to clients
that the move "could indicate an absence of deals" for the
historically acquisitive broker. At an investors conference last
week TD Ameritrade Holding Chief Executive Fred Tomczyk
indicated that the company is not actively involved in bidding
for any rival.
The discount broker, which only began paying a dividend in
2010, is constrained from buying back stock because that could
force TD Bank, its largest shareholder, to sell shares
at a loss in order to avoid becoming a majority shareholder. TD
owns about 45 percent of TD Ameritrade and last week said it
would pay $668 million to buy Epoch Investments, a U.S. asset
manager unrelated to TD Ameritrade.
The Epoch deal suggests a "reduced appetite" for allowing TD
Ameritrade to expand by buying rival brokers such as E*Trade
Financial Corp, Katz wrote.
Credit Suisse analyst Howard Chen, on the other hand, told
clients in a note that he does not interpret the special
dividend payment as "a meaningful shift in management's capital
return strategy (40-60 percent of net income) and/or acquisition
strategy." It surprised him only because the trend of U.S.
companies this year to pay special dividends appeared to be a
low priority at TD Ameritrade, he wrote.
The one-time payment "is another good strategic and
financial use of our capital at this time," Tomczyk said in a
Shares of TD Ameritrade closed 1.4 percent lower at $16.34
on the New York Stock Exchange on Monday. The fall was roughly
in line with the 1.1 percent drop in the NYSE Arca Broker-Dealer
Index of 11 stocks, which includes TD Ameritrade.