By Meredith Davis

Feb 4 (Reuters) - U.S. motorcycle manufacturer Harley-Davidson Inc. will stick with investments of $70 million in marketing and new product development even as it raised its dividend and increased the authorization to buy back shares, it said on Thursday.

Harley-Davidson, which has faced stiff competition in its home turf as foreign manufacturers offer deep discounts, said on Wednesday its board authorized the repurchase of up to 20 million shares of common stock and increased its quarterly dividend by 12.9 percent to 35 cents per share.

Some analysts said the company could fund the dividend increase with cash.

"The company generates a lot of free cash flow so they have a pretty high free cash flow yield," said Sharon Zackfia, analyst at William Blair.

Harley-Davidson had $1.1 billion in cash from operating activities at the end 2015, according to Reuters data.

It has invested in new models as it tries to diversify from its traditional customer base in the United States and looked to increase international sales.

U.S. sales of its iconic bikes fell about 3.4 percent in the fourth quarter and worldwide sales dipped 0.6 percent, the company said last week, as it reported a fall in quarterly income to $42.2 million from $74.5 million a year ago.

Returning value to shareholders remains a top priority, company spokesperson Tony Macrito said in an e-mail to Reuters on Thursday.

"Looking forward, we expect to continue to return excess cash to our shareholders in the form of increased dividends and continued share repurchases," he said.

The board did not set a deadline for completion of any share repurchase. The plan is in addition to 9 million shares it can still buy back from a 2015 authorization.

Harley-Davidson issued $750 million in debt in 2015 to fund a 15 million share repurchase, but is unlikely to tap debt markets again soon, analysts said.

"There is no reason to believe they would raise debt imminently," said Jaime Katz, analyst at Morningstar, who added that executives seemed comfortable with current leverage levels. Total current liabilities were nearly $2.8 million and long-term liabilities about $5.4 million.

With no acquisitions currently on the horizon and shares down 34 percent in the last year, it could be a good time to buy back shares, Katz said.

"It would make sense to buy back shares at this point. Over the last year the shares have fallen significantly and generally you want to buy back when the shares are cheap," Katz said.

(Reporting by Meredith Davis in Chicago; Editing by Leslie Adler)