Xerox shares plunges after slashing dividend ahead of Lexmark deal

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22-05-2025

Investing.com -- Shares of Xerox Corp (NASDAQ:XRX) fell sharply after-hours Thursday, down 15%, following the company's announcement of an 80% reduction in its quarterly dividend. The move comes as Xerox prepares for the acquisition of Lexmark, which has prompted a strategic shift in capital allocation to prioritize debt repayment.
In a recent statement, Xerox declared a quarterly dividend of $0.025 per share, a significant decrease from the previous $0.125 per share. This adjustment sets the annualized dividend at $0.10, with a resulting annual yield of 2%. The new yield compares to the prior dividend yield of close to 10%.
The new dividend will be payable on July 31, 2025, to shareholders of record as of June 30, 2025.
The dividend cut is part of Xerox's capital allocation strategy to manage the financial implications of the upcoming Lexmark acquisition. In December 2024, Xerox signaled this change, citing the need to reduce leverage post-closing as a key driver. The company has since faced rising yields on its publicly traded debt, increasing its cost of capital. This financial pressure, coupled with the accelerated timeline for the Lexmark deal and ongoing market uncertainties due to tariffs and trade volatility, has led to a greater emphasis on maintaining financial flexibility.
Xerox's CFO, Mirlanda Gecaj, emphasized the importance of this strategic move, stating, "Consistent with our previously stated capital allocation priorities to reduce leverage post-closing, we believe reducing our dividend creates greater financial flexibility to deploy cash in the most accretive manner." Gecaj reaffirmed that dividends continue to be a significant aspect of Xerox's capital allocation policy as the company fine-tunes its financial strategies in anticipation of the Lexmark acquisition.
Despite the dividend reduction, Xerox maintains its 2025 guidance and expects the Lexmark transaction to be deleveraging upon closing. The acquisition is projected to be immediately accretive to adjusted earnings per share and free cash flow. Xerox also anticipates at least $238 million in synergies from the Lexmark integration, achievable within two years. The company projects that the combined cash flows of Xerox and Lexmark, along with anticipated synergies and forward flow proceeds, will substantially enhance EBITDA and free cash flow, enabling a reduction in debt towards the targeted 3x gross debt leverage level.
As the company works towards reducing its gross debt leverage, Xerox plans to reassess its capital allocation priorities, including the capital returned to shareholders.
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