More Companies Paying Dividends For the First Time By SHELLY GARCIA Senior Reporter Several San Fernando Valley companies are joining a growing list of firms that are choosing to pay shareholders dividends for the first time. The moves come as the earnings picture at many companies begins to improve. But the decisions are also tied to several other factors, including a change in the way dividends are taxed and the current investment environment. “I think a lot of companies are looking at ways of adding shareholder value either through stock buybacks or dividends, and the change in the tax law is one significant dynamic that has made more people look at dividends as an alternative,” said Kyle Wescoat, CFO at Cherokee Inc., which earlier this month announced it would pay dividends to shareholders for the first time. Van Nuys-based Cherokee, a marketing company that has, among other things, arranged licensing agreements for retailers including Target and Marshall Field’s, declared a $0.375 per share dividend payable on December 19 to shareholders of record as of Dec. 1. The announcement followed the release of the company’s second quarter financial report in September, revealing a 13 percent increase in earnings and a 15 percent hike in revenues compared to the comparable quarter last year. For the three months, Cherokee reported earnings of $3.7 million or $0.43 per diluted share, compared to net income of $3.3 million or $0.38 per share last year. Revenues rose to $9.9 million from $8.6 million in the comparable period last year. “We are pleased to be able to follow through on our previously stated goal of enhancing shareholder value through a dividend,” said Robert Margolis, chairman and CEO of Cherokee in making the announcement. “Going forward, we will continue to evaluate opportunities to return profits to our shareholders when conditions permit.” Another local company, Diodes Inc. declared a stock dividend earlier this month after an upbeat financial report for the period ended Sept. 30. Diodes, a Westlake Village-based manufacturer of semiconductors, will pay shareholders one additional share of stock for every two shares held as of Nov. 14. As of Thursday, Nov. 20, Diodes shares were trading at $26.66. Diodes saw earnings increase 45 percent to $2.6 million or $0.26 per share in the third quarter of 2003, compared to $1.8 million in the third quarter of 2002. The company’s revenues increased 15.4 percent to $34.9 million in the same period. Diodes officials did not return phone calls for comment on the decision. Both companies join a growing number of firms that have moved to issue dividends to shareholders or to raise the dividends that they issue, passing along more of the company’s profits. Microsoft Corp. and Qualcomm Inc. are among those who began paying dividends for the first time this year. According to Standard & Poor’s, the number of companies that increased their dividend payments in the third quarter increased by 40 percent from the same period in 2002. In part, the moves were fueled by a federal tax cut on dividend income last May. The lower valuations on stock shares, coupled with some of the spotlight that has shone on improprieties in the public company sector, have also made the payment of dividends a more attractive way to reward shareholders.
