Samsung Electronics (SSNLF) strong showing in the third quarter prompted Moody’s Investors Service to reiterated its positive outlook on the South Korean consumer electronics giant.

Moody’s rates Samsung’s unsecured debt at A1 and has a positive outlook on its debt. The bond rating unit of Moody’s noted Samsung has enough cash to fund its increased dividend which it announced today.

The consumer electronics company, which has been embroiled in a management shakeup since the jailing of Samsung heir Jay Y. Lee, who was found guilty of bribery and embezzlement, reported record profits and announced it would double its dividend next year. For 2017, the annual dividend will increase by 20%. For 2019 and 2020 it will stay at the level reached in 2018. That will result in $25.8 billion in total dividend returns from 2018 through 2020, Samsung said. (See also: Why Samsung's Stock Will Outshine Apple.)

Doubling Up

“The company’s share price has more than doubled since the beginning of 2016, a validation of our shareholders’ approval of the improvements in our shareholder policy and confidence in the steps the company is taking,” said Samsung in prepared remarks. “Samsung Electronics remains committed to delivering sustainable shareholder value and will continue to enhance long-term value creation.” For the three months ended in September operating profits close to tripled from a year ago to 14.5 trillion won (nearly $13 billion). Revenue increased 29.8% to 62 trillion won.

"Samsung’s operating margin in 3Q 2017 increased to 23.4% from 23.1% in 2Q 2017, benefiting from the favorable fundamentals in the memory business," said Gloria Tsuen, a Moody's senior analyst in a report. She said operating margin should improve to about 20% this year from 14% in 2016. (See also: Why Samsung Stands to Gain If iPhone X Is a Hit.)

As for its new shareholder return program, the Moody’s analyst said that while future merger and acquisition investments won’t be deducted from free cash flow, it has enough cash and strong cash flow to provide it with a cushion to help offset any impact from any M&A investments. “Samsung’s leverage remains very low, with adjusted debt/EBITDA at 0.3x for the 12 months ended 30 September 2017. In addition, it has available liquid resources of KRW76 trillion as of 30 September 2017, which was more than sufficient to cover its total debt of KRW19 trillion. Moody's also expects SEC [Samsung] to generate around KRW55 trillion in operating cash flow this year, which will be more than enough to cover its KRW46.2 trillion in capital spending,” wrote the analyst.

 

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