7 Big Tech Companies That Need To Follow Apple’s Dividend Policy (AAPL, MSFT, INTC, ADBE, DELL, EBAY, EMC, GOOG, SYMC, YHOO)March 21, 2012 by Jon C. Ogg
The key technology dividend sinners are as follows: Adobe Systems Inc. (NASDAQ: ADBE); Dell Inc. (NASDAQ: DELL); eBay Inc. (NASDAQ: EBAY); EMC Corporation (NYSE: EMC); Google Inc. (NASDAQ: GOOG); Symantec Corporation (NASDAQ: SYMC); and Yahoo! Inc. (NASDAQ: YHOO).
We have given some detail on each here, including the history and how able a company is to begin paying a dividend. In the total liquidity calculations we have included what the companies list as their cash, cash equivalents, short-term investments, and also included the long-term investments. No consideration has been made for inventory, receivables, and other hard assets. Another metric we used was a 40% income payout model to see what sort of yields investors could get without even touching the capital reserves. We have used operating and non-GAAP estimates for calculating theoretical dividend yields.
Adobe Systems Inc. (NASDAQ: ADBE) is in the dividend sinning club out of the S&P 500 technology group. The company has a market value of close to $16 billion and it has been a public company since the 1980′s if you can believe it. The company does not pay a dividend currently and it has not indicated any intention to. With markets being mostly established, we would wonder if it needs to hold back more capital for even more acquisitions. The company has over $3 billion in liquidity on its books. Adobe could offer a yield of about 2.9% if it were to adopt a 40% adjusted income payout to shareholders.
Dell Inc. (NASDAQ: DELL) has been making acquisitions here and there to bolster its move from just being a PC company into a PC and information technology company. While it has more than $6 billion in direct long-term debt, Dell also has what is close to $20 billion in total liquidity. Rivals HP and IBM pay dividends and now Apple pays a dividend. What is so interesting here is that with a $30 billion market value, Dell could be a candidate for a solid one-time dividend this year and a hefty payout ratio going forward. It is just too hard to argue that its core market is growing. What is amazing is that Dell could pay out roughly a 4.9% dividend yield if it adopted a 40% of adjusted earnings to be paid out as dividends with touching a penny of its cash on hand.
eBay Inc. (NASDAQ: EBAY) is a dividend sinner of epic proportions. It has made acquisitions and it has made sales, and the real growth now lies in the PayPal market rather than in the auction markets. The only real need for eBay to keep a hold of its $8+ billion in total liquidity is if it can find a huge international outfit to buy. If eBay adopted a 40% payout ratio of income, without even considering its mountain of cash today on the books, eBay could be offering shareholders a 2.4% yield without denting its cash and reserves.
EMC Corporation (NYSE: EMC) has proven to grow and grow in the world of storage. With the cloud growth and with storage being nearly infinite, the company has been able to grow organically and via acquisitions and has preferred to use its capital for growth over dividends. It also owns a super-majority stake in VMware Inc. (NYSE: VMW). The storage leader has almost $11 billion in total liquidity and it carries almost no long-term debt. Without touching a penny of its cash and liquidity, a 40% adjusted income payout would generate a dividend yield of almost 2.4%.
Google Inc. (NASDAQ: GOOG) may be in the midst of a Motorola integration and acquisition, but it seems unlikely that it will need its cash arsenal in order to make a large acquisition. With such a huge amount of the search market, other acquisitions might be just yet another distraction from the core markets. As of December 31, 2011, its total liquidity was a whopping $44.6 billion against a market cap of just over $200 billion. Google could easily pay a 10% one-time dividend while dividend tax rates are low and could offer a hefty quarterly dividend and still grow its cash in the years ahead. If Google paid out 40% of its adjusted income without considering one-cent of its mountain of cash it could offer a 2.6% dividend yield today.
Symantec Corporation (NASDAQ: SYMC) has such little shareholder enthusiasm that it needs to consider more return of capital. It did just recently announce a $1 billion share buyback against its $13.3 billion market cap. The company has about $2.4 billion in liquidity, but it also has about $2 billion in direct long-term debt. If the company did not use any leverage, a 40% income payout ratio would actually give a dividend yield of about 3.5% as of today. With shares around $18.00, this one has been stuck like chuck in a long-term range of $15 to $20 since its huge Veritas acquisition.
Yahoo! Inc. (NASDAQ: YHOO) is the obvious candidate for a dividend. Management has decided to keep that liquidity arsenal of more than $7 billion at bay to help fund its turnaround. It is also hard to know what will become of the Alibaba and Yahoo! Japan stakes for liquidity in the equation. If Yahoo! were to just pay out 40% of its expected earnings from operations without tapping any cash on hand then it could offer a 2.1% dividend yield today without much worry. This is an ongoing call and it will not likely be answered until the international assets are properly monetized.
JON C. OGG