eBay Inc. (NASDAQ: EBAY) is one of the last internet and technology companies from before the tech bubble that is both extremely profitable yet pays no annual payment to its shareholders. What is interesting for investors today is that it still offers growth and still offers some value considering its near-monopoly for Joe Public to turn his spare belongings into cash in the equivalent of a nationwide garage sale with an auction format.
What makes eBay unique is that it almost seems to have never fully caught the respect it deserves. If you want to sell stuff in your home online easily, the only remaining place outside of certain niche items and niche markets is Craigslist. eBay has also recently begun selling debt and using a credit line back when it announced a $2 billion share buyback plan in October.
Share buybacks have seemed to do very little when it comes to technology and internet companies. The price of a stock is the price of a stock regardless of what management thinks. If eBay wants to draw in more new investors from the outside, the company really needs to adopt a dividend policy. It has more than enough liquidity to pay a dividend of 1% to 2% and it can still select to repurchase shares from time to time if it sees large sell-offs.
EMC Corporation (NYSE: EMC) has grown and grown, organically and inorganically. What is interesting is a near paradox in that the world of enterprise storage seems ever-growing, but there is some form of maturing happening here in the sector and consolidation has been the big game of late to protect market share against a rising tide of competitors. EMC has also started reaching down to smaller businesses and even to the small business and retail level of late.
Throughout EMC’s history, it has never paid a cash dividend despite six different stock splits from the early 1990′s to 2000. The company noted on its investor site, “While subject to periodic review, the current policy of EMC’s Board is to retain all earnings primarily to provide funds for the continued growth of the company.” The company now has a market cap of about $51.5 billion and shares hit nearly a decade high just this week after passing the $25.00 mark.
EMC has to be considered as more than just EMC. It holds roughly an 80% stake in virtualization leader VMware Inc. (NYSE: VMW). If the company could command the full value of that today, EMC could add up to over $25 billion into its coffers on top of more than $10 billion in cash, short term and marketable securities. The company is still expected to grow by double-digits in 2010 and 2011, but eventually shareholders are going to want more. EMC can consider a partial spin-off of VMware shares to its holders or it can consider unloading some of its cash. At some point, this dividend pressure should arise.
Kohl’s Corp. (NYSE: KSS) is one of the few large retailer destinations which does not pay a dividend. This retailer has been public since the early 1990s. While most consider retail a profit generation machine, retailers are very stingy by and large when it comes to paying out dividends. We just assumed that Kohl’s was paying a dividend to shareholders. It is not, and it has not. Rivals like Macy’s, Nordstrom, J.C. Penney, and Dillard’s do have quarterly payouts in the form of dividends to their shareholders. None are very impressive as margins are generally very thin.
Kohl’s says on its investor site: “We have never paid a dividend and have no current plans to pay a dividend on our Common Stock. The payment of future dividends, if any, will be determined by our Board of Directors in light of existing business conditions, including our earnings, financial condition and requirements, restrictions in financing agreements and other factors deemed relevant by our Board of Directors.” What the company is trying to signal is that it will pay a dividend if it wants to and if its credit pacts will allow for the foreseeable future.
After taking a look at its peer department store competitors, Kohl’s either is better off or is at least very competitive when it comes to profit margins, return on equity, price to book value ratio, and on a debt to equity basis. Where Kohl’s is not competitive is on the shareholder reward front with dividends. Asking for more than a 1% yield is probably not realistic, but Kohl’s should consider joining its peers with shareholder payouts.
These companies here have all been listed in alphabetic order, but there are two we want to discuss again. Cisco Systems, Inc. (NASDAQ: CSCO) and Apple Inc. (NASDAQ: AAPL) are both dividend stories for 2011.
Cisco Systems, Inc. (NASDAQ: CSCO) is likely a shoe-in after we hear about the quarterly earnings report due in February. John Chambers has already indicated that he would capitulate and declare a dividend and the indicated range was a yield of 1% to 2%. To date, the company has used billions upon billions to make small acquisitions and to offset employee and acquisition stock option conversions and the dilution from those. If you split the difference for close to 1.5% in yield as a starting point, it seems likely that a $0.06 per quarter dividend could be declared.
Apple Inc. (NASDAQ: AAPL) will not pay a dividend under Steve Jobs. He has said that without pause so he can have flexibility and can look at “strategic” opportunities. We wish Mr. Jobs all the luck in his latest health fight, but investors are getting another reality check that Apple will one day be without Steve Jobs. That means new permanent management and a new style of how the company will present itself as an investment opportunity and growth engine. If Tim Cook or another manager has to fill Mr. Jobs’ shoes as the permanent CEO, there is a real chance that Apple may decide to send a one-time dividend or declare a very healthy steady dividend to holders to easy the dust-settling process. This is one of those if-then scenarios rather than a fact, but a realistic possibility nonetheless. Apple is in the position that it could send $30.00 per share as a one-time dividend in the mail after the next quarter and it would likely not have any major impact at all on its ability to be highly flexible.
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JON C. OGG