- The Washington Times - Monday, June 2, 2003

Shares of SLM Corp., commonly known as Sallie Mae, surged Friday after the student-loan company said it would more than double its quarterly dividend.

Sallie Mae, the Reston company that manages more than $81 billion in student loans, responded to President Bush’s signing of a $350 billion tax-cut package Thursday by announcing it will raise its dividend to 51 cents from 25 cents. The tax bill cuts the tax on dividends to a maximum of 15 percent.

Shares of Sallie Mae rose $5, or 4.35 percent, to close at $120 on the New York Stock Exchange Friday before settling down to $118 yesterday. The closing price Friday was a 52-week high. Shares have risen more than 17 percent since January.

“Earnings not reinvested in the business belong in shareholders’ pockets,” Sallie Mae Chief Executive Officer Albert L. Lord said in a statement. “Increasing our dividend is the right thing to do and the signing of [the] tax bill makes it the right time.”

The dividend increase will kick in June 20, the same day that Sallie Mae shares will undergo a three-for-one split, the first since 1998, when it executed a seven-for-two change.

Sallie Mae has increased its dividend every year since becoming publicly traded in 1983.

The company said the dividend increase would have no effect on its overall earnings, but some analysts said it could hurt earnings per share over time.

“Eventually, if they continue to give this dividend, it may slow share growth,” said Matt Snowling, an analyst with Friedman, Billings, Ramsey Group. “But it’s just a matter of whether you want the growth in earnings per share or dividends. And most shareholders are indifferent.”

The company reported net income of $416.5 million ($2.64 per share) in the first quarter of this year, down from $422.3 million ($2.63 per share) a year ago.

Revenue increased to $750.78 million in the quarter from $553.2 million.

Congress created Sallie Mae in 1965 as part of the Higher Education Act and designated it as a government-subsidized enterprise, designed to fund loans to certain kinds of borrowers — in this case, students.

Since 1997, it has worked to privatize and must refinance debt to do so. Some analysts said paying more money in dividends could mean a delay in refinancing, because more money is being distributed to shareholders. But other analysts said the company was still on track to privatize by 2006.

“I think they were already pretty much on track to reach the privatization goal,” Mr. Snowling said.

Sallie Mae has said it wants to privatize because the move will give it more flexibility to do what it wants.

Analysts were optimistic about Sallie Mae’s future. Tuition is rising as a slow economy shrinks the size of private-school endowments; state budget crises have cut money allotted to public schools; and the number of teenagers looking to attending college increases.

The rising price of education has meant a greater need for Sallie Mae loans, analysts said. What’s more, the interest rates on student loans, now at less than 4 percent, have made borrowing more attractive. Interest rates on student loans will be 3.42 percent, a new low, starting July 1.

The dividend increase applies only to investors holding shares of common stock as of June 8. Holders of preferred stock will receive a dividend of 87 cents per share July 30, the company said.

Sallie Mae has about 150 million shares of outstanding common stock and 3.3 million shares of outstanding preferred stock.


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