Safeway Shares Gain on Plan to Accelerate Dividend Payout

Thursday, 06 Dec 2012 03:01 PM

 

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Shares of Safeway Inc. rose the most in four years after the second-largest U.S. grocery store chain said it will pay its regular quarterly dividend this month instead of in January.

The shares advanced 3.7 percent to $18.10 at midafternoon in New York after the grocer said it will pay the dividend of 17.5 cents a share on Dec. 31. Earlier the stock, down 17 percent this year through yesterday, climbed 11 percent for the biggest intraday gain since December 2008.

Safeway joins companies from Oracle Corp. to Sirius XM Radio Inc. that have announced plans to accelerate payouts or offer special dividends ahead of a potential U.S. tax increase next year. Safeway’s move shows the company’s cash flow is in good shape, even after selling debt to finance share buybacks in the past year, said Chuck Cerankosky, an analyst with Northcoast Research Holdings LLC in Cleveland.

“By indicating they could easily pay the dividend ahead of time, it throws some water on the theory their cash flow is weak,” Cerankosky, who rates the stock a buy, said in a telephone interview today.

The Pleasanton, California-based company’s statement may give pause to the high number of stock investors betting on a drop in Safeway’s shares, he said.

Short interest as a percentage of Safeway shares available for trading was 33 percent as of Dec. 4 from 12 percent about a year ago, according to data compiled by Markit and Bloomberg. Short-sellers bet that a stock will decline in value, usually by selling shares they borrow, then buying them back at a lower price.

Kroger Co., based in Cincinnati, is the largest U.S. grocery chain.

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