More Than 20 Great Companies Which Refuse To Pay Dividends (AMZN, AMGN, AAPL, BBBY, BRK-A, CBB, DELL, DG, DLTR, EBAY, ERTS, EMC, ESRX, FLEX, GOOG, JACK, NDAQ, SYMC, UAL, URBN, WDC, YHOO, ZBRA, CSCO, VMW, MHS)July 28, 2011 by Jon C. Ogg
If you have been a reader of 24/7 Wall St. for long, you know that we appreciate companies that pay dividends just about as much the investors who buy companies because of their great dividends. With all of the uncertainty in today’s markets and in today’s economy, having a solid dividend policy may be the key to keeping nervous investors from fleeing and going into cash or other assets that actually pay no income at all. Some of the greatest companies of today and yesteryear actually refuse to pay dividends to shareholders. For some companies, they can get away without paying a cent to owners because the value and growth is so strong. There is another list of “Dividend Sinners” which should be paying a dividend to holders and have just decided to control that cash in-house instead.
We have identified more than twenty Dividend Sinners. Our review focuses on Amazon.com, Inc. (NASDAQ: AMZN), Amgen Inc. (NASDAQ: AMGN), Apple Inc. (NASDAQ: AAPL), Bed Bath & Beyond, Inc. (NASDAQ: BBBY), Berkshire Hathaway Inc. (NYSE: BRK-A), Cincinnati Bell Inc. (NYSE: CBB), Dell Inc. (NASDAQ: DELL), Dollar General Corporation (NYSE: DG ), Dollar Tree, Inc. (NASDAQ: DLTR), eBay Inc. (NASDAQ: EBAY), Electronic Arts Inc. (NASDAQ: ERTS), EMC Corporation (NYSE: EMC), Express Scripts, Inc. (NASDAQ: ESRX), Flextronics International Ltd. (NASDAQ: FLEX), Google Inc. (NASDAQ: GOOG), Jack In The Box Inc. (NASDAQ: JACK), Nasdaq OMX Group Inc. (NASDAQ: NDAQ), Symantec Corporation (NASDAQ: SYMC), United Continental Holdings, Inc. (NYSE: UAL), Urban Outfitters, Inc. (NASDAQ: URBN), Western Digital Corporation (NYSE: WDC), Yahoo! Inc. (NASDAQ: YHOO), and Zebra Technologies Corporation (NASDAQ: ZBRA).
You can see that many of these are not technology giants. Many are. The aim is to handicap which companies still can get away without paying out income to their shareholders versus those which can and should. Some of the more obvious Dividend Sinners are the same as you have seen criticized before, but many of these are overlooked by the media and by investors alike. In some cases the lack of dividend payments is just ludicrous. Cisco Systems, Inc. (NASDAQ: CSCO) waited far too long to adopt a dividend policy and look what happened to its shares after inaction. Kohl’s Corporation (NYSE: KSS) took until this year before finally declaring a dividend while its direct competitors have paid dividends for years.
Again, some companies can get away without paying holders a penny. Our aim was to identify the highly able companies and those which lag peers enough that the dividend trend just needs to be considered by management of these companies. We looked at forward P/E ratios based upon next year’s estimates from Thomson Reuters, the return on equity (ROE) from Finviz.com, the current share price and a 52-week trading range, along with the market cap of each company. If applicable, we handicapped competitor and peer dividends and even noted how high of a dividend these companies could pay out.
Activist investors could have a field-day with at least a few of these dividend sinners…
Amazon.com, Inc. (NASDAQ: AMZN) is the online retail king. It has a forward price earnings multiple of 56 and a return on equity (ROE) of 16.3%. Its market cap is $100 billion. The recent share price was $222 and the 52-week trading range is $114.51 to $227.20. While much of the tone of this article might seem to be geared around a negative impact of a no-dividend policy, Amazon.com is actually in a different camp. At 58-times 2012 projected earnings, the question to ask is “how high of a dividend could it pay anyway?”… Wall Street has even been able to absorb habitually lower and lower margins as it ramps up its capital spending. With shares having now hit the $100 billion market cap and having hit fresh all-time highs, is there are reason to criticize the company right now? We predicted that it would be on of the next mega-cap stocks for a reason.
Amgen Inc. (NASDAQ: AMGN) is due with earnings shortly and its path has been a boring one for long enough. The largest independent biotech outfit has a forward price earnings multiple of 9.7 and a return on equity (ROE) of 19.4%. Its market cap is $51 billion. The recent share price was $54.00 and the 52-week trading range is $50.26 to $61.53. Investors hope and pray that Amgen will be the first of the big biotechs to finally declare a dividend. The call has been a longstanding call and the company has more than enough ample cash and patent protection to justify a healthy payout. With about $15 billion in liquidity and $10 billion in long-term debt, investors should ask the company to stop wasting the cash by repurchasing shares in the open market. It hasn’t worked as is the case with most share buyback plans. If it is not going to have a dividend, maybe it should consider growing into new arenas with a substantial acquisition. Our take is that Amgen is going to have to do something at some point soon and a dividend will do far better than a stock buyback plan.
Apple Inc. (NASDAQ: AAPL) is another one that it is often criticized for not paying a dividend, but what right do any of us from the outside have to say that it is not doing the right thing? Apple has fired on all cylinders and the earnings performance this quarter was beyond amazing. The has a forward price earnings multiple of only 12.7 and a return on equity (ROE) of 42%. Its market cap is $372 billion and it could be on its way to having literally $100 billion in cash on its balance sheet. The recent share price was $398.50 and the 52-week trading range is $235.56 to $404.23. Apple is another company which has habitually been knocked for not paying a dividend to shareholders. Still, does it even have to listen? This has been a monster growth story that does not yet seem over. Until someone is actually succeeding Steve Jobs permanently and until the company feels that the dividend argument makes sense, we would advise that income investors look for a cash payout elsewhere. Still imagine the reaction if you got the headlines that Apple was splitting its stock 8-for-1, was announcing a 15% cash dividend, was going to commit to returning capital by steady dividends, while still announcing that it has not even captured one-third of its total market goals.
Bed Bath & Beyond, Inc. (NYSE: BBBY) has been a massive growth story. The retailer has a forward price earnings multiple of almost 14 and a return on equity (ROE) of 21.6%. Its market cap is $14.2 billion. The recent share price was $58.00 and the 52-week trading range is $35.55 to $60.55. What is amazing is that ‘The Triple-B’ has no payout at all. It has been public since the early 1990s and it has announced a 2-for1 stock split on 4 different occasions. The company grows and grows and its model may not have as much upside in the next decade compared to the last decade. Retail stocks have started paying higher dividends, and this seems a real candidate for a dividend payer. After all, it may be an arguable point but half of the households may think that the client base does not even know what a recession is. What makes Bed Bath & Beyond so different from many retailers is its solid balance sheet with nearly $2 billion in cash and liquidity and nearly no significant long-term debt. In fact, the books are so de-leveraged that it could even announce a debt offering and a solid dividend accompanied by a one-time dividend.
Berkshire Hathaway Inc. (NYSE: BRK-A) is strange because it is massive, it is widely watched by investors, and it has very few analysts that cover the company. The screen from Finviz.com showed a return on equity of 7.1%. Its market cap is $188 billion. The recent share price was $112,000.00 and the 52-week trading range is $109,925.00 to $131,463.00. Warren Buffett is now an old man who commands a massive audience when he speaks, but all of its his old analogies and references for the great future are just not believable any longer. Maybe Berkshire Hathaway can just keep making multi-billion dollar acquisition after multi-billion dollar acquisition. The problem is that Buffett has discussed the book value growth and share performance not having the same opportunities ahead as what was seen up until the last decade. Buffett has also hinted that the firm could ultimately pay a dividend. After 50 years or so, is it too much to ask from a conglomerate and financial betting engine? Maybe it will take the Buffett successor to declare a high payout rather than Buffett himself. If this is not going to grow as fast as the market and if the “Buffett Premium” is in for this stock, then ultimately the firm has no choice but to pay its shareholders with quarterly income. With the billions and billions it has, perhaps a dividend yield of 2% isn’t asking too much.
Cincinnati Bell Inc. (NYSE: CBB) is one of the dismal communication and telecom providers that is small enough and has lagged enough that something has to be done here. The company has a 11.5 forward price earnings multiple. Its market cap is $677 million. The recent share price was $3.41 and the 52-week trading range is $2.27 to $3.64. This stock has been dead money for so long that it has been mostly forgotten about. Our take is that it has long been a regional acquisition possibility in the world of telecom M&A. Unfortunately, its books are leveraged and its income is not growing. When you have AT&T and Verizon paying north of 5% in dividend yields, what is the point of investing in the weakest telecom of the old Bells without a dividend? With a regional footprint that includes adjoining markets in Ohio, Indiana, and Kentucky, dividend investors may feel a bit “dissed” by a telecom operation that dates back to the 1800s.
Dell Inc. (NASDAQ: DELL) has a forward price earnings multiple of 8.9 and a return on equity (ROE) of 45.5%. Its market cap is $31 billion. The recent share price was $16.44 and the 52-week trading range is $11.34 to $17.60. Dell has been making acquisitions to transform itself and it has actually been able to grow in a world now dominated by Apple. HP’s woes are playing in Dell’s favor. What is amazing is that Dell has nearly $15 billion in cash before considering its debt implications. The company could not afford to pay anywhere near all of its cash out, but there is ample room for a solid dividend here that would allow it to be one of the better dividend in technology. The big challenge is an identity crisis, because investors still want to think of the PC business as a growth business. Making PCs now is now almost no different than making high-end toasters. The thing keeping a large payout from coming here is the ability to remain flexible for a large acquisition if such an opportunity arises. Still, Dell’s only true competitor which does not pay a dividend is Apple and Steve Jobs can get away with no dividend.
Dollar Stores are Dividend Sinners… It turns out that both Dollar General Corporation (NYSE: DG) and Dollar Tree, Inc. (NASDAQ: DLTR) do not pay dividends yet. They are treated as “The Next Wal-Mart” and investors will eventually want the safety of dividends as the population has reached down to the “$1.00 and not too far above $1.00″ category of shopping. These retailers have also done a solid job of “reaching up” to grab more customers as well by getting out of just “the dollar store” marks. Dollar General Corporation (NYSE: DG) has a forward price earnings multiple of 12.7 and a return on equity (ROE) of 16.7%. Its market cap is $10.9 billion. The recent share price was $31.75 and the 52-week trading range is $26.64 to $35.09. Dollar Tree, Inc. (NASDAQ: DLTR) has a forward price earnings multiple of 15 and a return on equity (ROE) of 31.3%. Its market cap is $8.2 billion. The recent share price was $66.91 and the 52-week trading range is $40.60 to $70.54. Dollar General was one of our “stocks to own for the next decade” and that was in part due to the belief that it would pay out a dividend as soon as the private equity backers have gotten more money out of the company.
eBay Inc. (NASDAQ: EBAY) is a big-time dividend sinner that just needs to be addressed. It has grown its market into what is a near monopoly in America and its expansion comes from PayPal, ancillary services, and internationally. It has a forward price earnings multiple of 14.8 and a return on equity (ROE) of 12.5%. Its market cap is over $43 billion. The recent share price was $33.36 and the 52-week trading range is $20.53 to $35.35. Double-digit earnings and revenue growth are still expected and the company has more than $7 billion in liquidity after its leveraging move if you include long-term securities. The investment community does not seem to expect that management is going to reverse engineer artificial growth, otherwise the price target would be more than the almost-$38.50 level. eBay won the war, now it is time to use its strong balance sheet to begin paying shareholders.
Electronic Arts Inc. (NASDAQ: ERTS) is trying to reinvigorate its growth by download-model games, social gaming, and likely from the “freemium” games. These generate high profits as you have sen with Zynga and others. EA is also in the midst of an acquisition along those lines. The former video game leader has a forward price earnings multiple of 21.8 and the data screened out actually showed a negative return on equity of 10% as it is getting itself back in order. Its market cap is $7.6 billion. The recent share price was $22.97 and the 52-week trading range is $14.67 to $25.05. We picked this as the top video game pick for 2011 due to its value then, but currently the analyst community only has a price target objective of about $24.40. The company has been public for nearly twenty years now, it has had four stock splits, and its stock is roughly half of its peak from 2005 to 2008. It has also even laid off workers, a sign of a mature company.
EMC Corporation (NYSE: EMC) is the storage sector’s envy on all fronts. It also owns more than 80% of VMware Inc. (NYSE: VMW) as a hidden asset. The company has a forward price earnings multiple of 15.6 and a return on equity (ROE) of 12%. Its market cap is over $54 billion. The recent share price was $26.60 and the 52-week trading range is $17.90 to $28.73. EMC has almost $10 billion in liquidity if you count its long-term investments against about $3.5 billion in longer-term liabilities from debt and deferred liabilities combined with ‘other’ liabilities. The company has said that it reviews its dividend policy but has chosen to grow with acquisitions. The company has long been thought of as being able to offer out the VMware stake to holders, and that stake alone has a current market value of more than $30 billion. If EMC was not so immune to outside pressure and was not so successful, it would be an activist investor’s dream to be able to force EMC to unlock that shareholder value. Maybe a simple dividend would suffice, say in the 2.5% category.
Express Scripts, Inc. (NASDAQ: ESRX) is now a wild card considering its attempt to play Pac-Man with Medco Health Solutions (NYSE: MHS). Neither company offers a dividend. Frankly, it is shocking that Express Scripts has been able to get by with a no-dividend policy for as long as it has considering that it is in healthcare and cost containment via pharmacy benefit management. This one is simple: if the MedcoHealth antitrust camp wins and the deal is blocked, then Express is going to have to start rewarding shareholders. Even if the deal does get done and the new debt is tallied up, it will kick the can down the road a couple years before the combined company has to start using all those cost saving opportunities to start paying dividends to shareholders. How many growth opportunities are there in healthcare under the new normal. The company’s public track record goes all the way back to the early 1990′s and it has seen six stock splits without a single payout. This one has a forward price earnings multiple of about 14 and a return on equity (ROE) of 33.4%. Its market cap is $29 billion. The recent share price was $54.50 and the 52-week trading range is $41.67 to $60.89.
Flextronics International Ltd. (NASDAQ: FLEX) is one of the ‘dividend sinners’ in electronics manufacturing services, also known as outsourced manufacturing or EMS operations. The company is based in Singapore and some of these offshore and domestic EMS outfits pay dividends while some do not. Jabil does pay a 1.4% payout and the reason we have picked Flextronics out of the EMS sector is that it has close to 20 years of being public and it is basically the largest and it is not just servicing the technology sector. Flextronics has a forward price earnings multiple of only about 6 and a return on equity (ROE) of 28%. It shares the same fluctuating revenue stream through the business cycle Its market cap is $5 billion. The recent share price was $6.55 and the 52-week trading range is $4.86 to $8.50. Of the larger non-dividend EMS players, it is our belief that Flextronics has the ability to start paying shareholders a dividend rather than just having the share price fluctuate in a wide band.
Google Inc. (NASDAQ: GOOG) is not quite ten years old as a public company and the outfit is spending capital on perhaps more than a dozen directions outside of online search. Many investors disagree with this growth into too many strategies with no clear pay-off for the effort, and it was one of our recent “stocks that will never see the all-time high” again for share prices. That of course has some caveats, but Google’s ‘Do No Evil’ policy may not be quite as angelic as some shareholders would wish. The company has a forward price/earnings multiple of 14.9 and a return on equity (ROE) of 19.2%. Its market cap is $195 billion. The recent share price was about $607.00 and the 52-week trading range is $447.65 to $642.96. About 20% of its market capitalization is cash at $39.1 billion… and growing cash it is. Google has been reluctant to make a whale of an acquisition and our take is that it really will not make a whale of a deal unless it has to. With a low P/E and with a growth model in place, Google could rapidly become a company which pays out a substantial dividend and continues to grow. It still has very little in long-term debt and rates are so low that the company could go out and get dirt cheap capital if it really wanted to. Larry Page probably won’t jump on a dividend train any time soon, but the company could easily take on some leverage and offer a massive dividend if it wanted to.
Jack In The Box Inc. (NASDAQ: JACK) may have funny ‘Jack’ commercials and may have better fast food than some fast food joints, but this stock has just been stuck in the mud. It needs to tear a page from the McDonald’s playbook and go on a shareholder friendly policy of higher dividends. There are plenty of growth markets left for Jack in the Box, but the question to ask is if it hasn’t happened then what is the point. There is also the Qdoba store concept to unlock value. The company has a forward price earnings multiple of 12.6 and a return on equity (ROE) of 13.1%. Its market cap is a piddly $1.14 billion. The recent share price was $22.95 and the 52-week trading range is $18.71 to $24.51. If the company could drop just a little debt it would have more than ample income and cash flow to begin paying a 1.5% to 2.0% dividend. Restaurant chains that do not pay dividends right now are just not hot for investors unless they are still in a rapid-growth phase.
NASDAQ OMX Group Inc. (NASDAQ: NDAQ) is #2 in America for equity exchange valuations behind NYSE, and after the NYSE becomes German it will not have a direct equity peer. NYSE has paid a yield north of 3% and its $0.30 payout per quarter has been steady since 2008. NASDAQ has so far not paid a dividend. What is strange is that it has a forward price/earnings multiple of 8.8 and a return on equity of 8.65%. Its market cap is $4.15 billion. The recent share price was $23.50 and the 52-week trading range is $17.81 to $29.71. OK, so NASDAQ wants to do the same as NYSE by merging merging around the globe. This has been a primary exchange for traders and has not been thought of poorly as “that other little exchange for speculative stocks” for close to two decades now. While the exchange has plenty of debt, it also has massive cash and long-term investments. It might not be smart to demand an equivalent 3%-plus yield as the NYSE has, but there is no reason for the exchange to remain a dividend sinner.
Symantec Corporation (NASDAQ: SYMC) has been stuck in the mud for longer than anyone would care to remember. The security mix changed when it acquired Veritas for storage and things have just really never been the same since. Symantec has a forward price earnings multiple of 10.6 and a return on equity (ROE) of 13%. Its market cap is about $14 billion. The recent share price was $18.50 and the 52-week trading range is $12.04 to $20.50. The company is on the back side of an earnings report and there is just no apparent catalyst that will get it back on the growth track despite another $4 billion-plus on acquisitions since it acquired Veritas. The obstacle that Symantec has is debt, but it has liquidity and cash flow that is normalizing enough for the company to at least begin dabbling in a dividend strategy. Symantec has already gone through share buybacks and has renewed buyback plans. How is that working for holders? If a technology company needs to start offering a dividend, Symantec fits the bill.
United Continental Holdings, Inc. (NYSE: UAL) is now the biggest airline by revenues now that United and Continental have completed their merger. Despite the belief by many that this airline merger should have never been allowed, what is obvious is that the airline segment only has Southwest offering a small dividend. The earnings power is expected to be enough that it is time to start rewarding shareholders, particularly those shareholders who are also customers tired of losing privileges and facing less and less comfortable of travel conditions. This one has a crazy forward P/E ratio of under 4-times next year and about 5-times this year’s earnings estimates. Sure, these companies have to save cash for rainy days because when recessions hit or when geopolitical events hit they really hit airlines hard. Its market cap is only about $6 billion based on a recent price of $18.06 and the 52-week trading range is $17.91 to $29.75. The reality is that no one knows how to value airlines any longer, but initiating even a small dividend might help some income-oriented funds to get past the super-cyclical nature of these earnings reports. Besides that, a dividend might just help some customers who are shareholders get over the shorter leg room and the lofty checked-bag fees.
Urban Outfitters, Inc. (NASDAQ: URBN) was in the first half of the last decade what Gap was in the 1990s. The apparel retailer has a reasonable forward price-to-earnings multiple of 17.2 and a return on equity of 19.4%. Its market cap is $5.14 billion. The recent share price was $32.16 and the 52-week trading range is $27.96 to $39.26. Now it seems as though the massive growth trajectory is getting harder and harder to achieve despite more brands. Private equity firms might love to own this one if it ever gets cheap enough. What makes this one different than many apparel retailers is that it has accumulated a large cash balance and it has previously bought back stock. Our take is that for this to remain cool for investors it is going to require a dividend policy as so many retailers have started embarking on.
Western Digital Corporation (NYSE: WDC) is unlikely to be a major dividend payer based on its recent acquisition of Hitachi’s competing drive unit. What is interesting is that the buyout rivals a Seagate acquisition of the same sort of Samsung’s unit. The difference is that Seagate pays a dividend. Western Digital has also been a cheaper stock on valuation models by our count though time. This one has limited long-term debt as of now and sits on a mountain of cash. WD has a forward price earnings multiple of 8.4 and a return on equity (ROE) of 17.1%. Its market cap is $8.25 billion. The recent share price was $35.50 and the 52-week trading range is $23.06 to $41.87. The cost per terabyte of storage has pressured both Seagate and WD, as has the move to flash drives. Our belief is that the companies are still offering value, and now it is Western Digital’s time to shine in value with a decent dividend whether its review of the Hitachi unit is allowed to close or not.
Yahoo! Inc. (NASDAQ: YHOO) is still trying to be turned around under Carol Bartz. It turns out that internet outfits just do not want to pay dividends, but perhaps this could change the valuation discount that Wall Street applies to what used to be the number-1 company in search. You can forget about that $30 share price ever coming back from Microsoft in a buyout. The company has hundreds of millions to perhaps a few billion that can be unlocked in international assets. Carol Bartz has also been cutting expenses. The company has a forward price earnings multiple of 15.8 and a return on equity (ROE) of 9.45%. Its market cap is $17.7 billion. The recent share price was $13.59 and the 52-week trading range is $12.94 to $18.84. Even lackluster earnings failed to crush the stock too bad compared to what many might have expected after the news came out. There is well over $7 billion in liquidity that it can tap and debt is just not a problem at about only 2-times tangible book value. Maybe it cannot sell itself as the cool search company any longer, but it can try to sell itself as the new shareholder-friendly internet company.
Zebra Technologies Corporation (NASDAQ: ZBRA) has been a winner in barcodes and RFID systems for retail and many other inventory management solutions for healthcare, manufacturing, retail, automotive, and beyond. The company has been public since the early 1990′s and is one we considered could always be a takeover target from private equity. Zebra carries almost $400 million in liquidity and its debt is almost non-existent considering a $2.2 billion market cap. Its forward price earnings multiple is close to 15 and its ROE is about 14.4%. Its market cap is $2.2 billion. The recent share price was $40.42 and the 52-week trading range is $26.27 to $44.53. The company could easily adopt a 2% dividend yield payout as of today without upsetting its growth nor without altering cash flows in a meaningful way that would pressure its balance sheet. The time has come for a dividend here.
So, now you have a great list of Dividend Sinners. Don’t expect all of these to just capitulate and start paying a dividend just because they should. On the other hand, some really need to start paying a dividend and committing to a solid dividend policy. There is just no other obvious path as a method of rewarding existing shareholders and enticing new shareholders. Most companies understand understand that there are many giant fund managers and pension assets that just cannot invest in companies which do not pay a dividend.
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JON C. OGG