TD Ameritrade dividend signals no buybacks, deals -analysts

NEW YORK Mon Dec 10, 2012 5:20pm EST

NEW YORK Dec 10 (Reuters) - 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 books.

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 prepared statement.

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.

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