RPT-PREVIEW-Siemens seen rewarding shareholder patience

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By Marilyn Gerlach

FRANKFURT, Nov 8 (Reuters) - German industrial group Siemens (SIEGn.DE), sitting on cash hoarded during the downturn, was seen revealing new strategic targets this week paving the way to return capital to investors through a higher dividend.

Europe's biggest engineering company was also set to unveil new capital allocation goals weeks after Dutch conglomerate Philips (PHG.AS), a rival in healthcare and lighting businesses, revealed its own margin forecasts for 2011-2015. [ID:nLDE68D09V]

Siemens, a bellwether of the euro zone's largest economy, was expected to post a 59 percent fall to 790 million euros ($1.1 billion) in fourth-quarter operating profit for its three core businesses on Nov. 11, a Reuters poll found.

The dividend was seen rising 15 percent to 1.84 euros.

The company, whose products range from high-speed trains and wind turbines to hearing aids and lightbulbs, wants to be more shareholder-friendly after completing a four-year programme to catch up with rivals such as Philips, General Electric (GE.N) and Alstom (ALSO.PA).

Siemens was estimated to have excess cash of 8-10 billion euros ($11.1-$13.9 billion), giving it headroom for higher dividends and bolt-on acquisitions.

However, analysts did not expect Siemens to immediately follow the share buyback path taken by rival GE, saying it will make only make small to mid-sized acquisitions in the near future. [ID:nN23241252]

Siemens itself said on Monday it would make smaller acquisitions of the same scale as the $418 million takeover of solar energy company Solel to grow revenues from its environment products and technologies. [ID:nLDE6A70FY]

The Munich-based company was seen announcing targets for a mid-term dividend payout ratio in line with the new capital structure, to become more transparent.

LOW DIVIDEND YIELD

While Siemens has a high dividend cover of 4.7 times 12-month forward earnings, its yield is only 2.4 percent versus a 3.1 percent average among sector peers, according to Thomson Reuters StarMine data.

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"For 2010, we look for a dividend of 1.90 euros compared to 1.60 euros last year. This would equate to a payout ratio of around 30 percent," JP Morgan analyst Andreas Willi said.

Most analysts estimated the dividend for Siemens's fiscal year to September 2010 will be higher than 1.60 euros it has stood at since 2007.

Willi, who forecast a 1.6 percent rise in 2010 adjusted operating profit to 7.58 billion euros, said if the future payout target corridor includes a level at 40 percent of net profit, the dividend could be more than 2.50 euros over a couple of years.

"At that level, we believe the dividend would become substantial enough to provide support to the stock in terms of yield versus bonds and would be supportive of the stock's P/E multiple," Willi said.

Siemens's capital structure target, announced in 2007, was the ratio of "adjusted industrial net debt to EBITDA" with a target 0.8-1.0 by 2010. To meet that goal, it launched a 10 billion euro buyback programme which was halted in 2008.

The few analysts who forecast adjusted "sector profit" -- core operating profit -- estimated it would be little changed at 7.5 billion euros and pencilled in a flat dividend.

"They might want to increase their dividend as a signal that they are confident about the development for the next few years but sector profit is constant compared to last year, so it would be possible that they leave the dividend unchanged," said Ingo-Martin Schachel of Commerzbank.

In the past six years, the payout ratio averaged 41 percent.

"We expect the regular dividend to rise from 1.60 euros to 2.00 euros. There is scope for a special dividend but this is impossible to forecast," said Peter Reilly of Deutsche Bank, adding the level depended on the new capital target. (Editing by Dan Lalor) ($1 = 0.7189 euro)