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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.

Some names under consideration that have either been rumored to be in deals or which could potentially be in future M&A deals are Brocade Communications Systems, Inc. (NASDAQ: BRCD), Cincinnati Bell Inc. (NYSE: CBB), CommVault Systems, Inc. (NASDAQ: CVLT), Dell Inc. (NASDAQ: DELL), JDS Uniphase Corporation (NASDAQ: JDSU), Leap Wireless International Inc. (NASDAQ: LEAP), MetroPCS Communications Inc. (NYSE: PCS), MEMC Electronic Materials Inc. (NYSE: WFR), Novell Inc. (NASDAQ: NOVL), Premiere Global Services, Inc. (NYSE: PGI), RadioShack Corp. (NYSE: RSH), Tellabs Inc. (NASDAQ: TLAB), Teradata Corporation (NYSE: TDC), OmniVision Technologies Inc. (NASDAQ: OVTI), and Synaptics Inc. (NASDAQ: SYNA).

For starters, most of the companies listed as targets here are possible bolt-on mergers rather than super-mergers.  Closing a mega-deal by the end of the year that has not been announced is going to be tough, and that likely means that the capital gains and the effects of the old Bush tax rates on capital gains will be either gone or muted in 2011.  Businesses today are willing to spend cash for companies that can be easily integrated or that open up new and untapped markets for them.  As far as a giant taking on another giant and then having to make divestitures and many layoffs, those deals are far less attractive for companies right now.  Then there is the notion of a tougher regulatory approval environment for large mergers that has to be considered.

The list of companies we have provided falls into at least two of three distinct categories.  The first category is that the company has been either a target or acquirer and a deal fell through.  The second category is that the company has either been rumored to be in a merger or it is a company that is one we have viewed as a shoe-in target for the right acquirer.  Lastly, there is the bolt-on deal or at a minimum a tool-box deal to make these easy for a buyer to gobble up.

We have compiled a list of predators and prey here for your review in the technology, telecom, and communications sectors.  This list is displayed alphabetically to avoid any ranking issues or any more pointed issues over size and the real chances of a deal coming into play.

One name which used to come up routinely is Brocade Communications Systems, Inc. (NASDAQ: BRCD).  This was one of our picks for stocks which could still double, and the buyout thesis for a low-cost provider in networking and storage was a part of why we thought the stock could double.  The short-term moves are not working in favor of holders, so it would seem no deal is imminent even if shares are at $5.15.

Cincinnati Bell Inc. (NYSE: CBB) is one of the last of the “anything remotely tied to the Bells” stocks, although it has always been its own boss.  It is the main telecom player for Cincinnati and its nearby areas located in Ohio, Indiana and Kentucky, making this a potential bolt-on acquisition for a larger telecom player.  It has almost the same exact operational area as its license back to the end of the 1800′s with a 25 mile radius around Cincinnati.  The small $615 million market cap would make this a line-item for a buyer, but it is worth noting that both AT&T and Verizon are going to have a harder and harder time under regulatory review in making acquisitions.  With shares at $3.06, the 52-week trading range is $2.50 to $3.74.

CommVault Systems, Inc. (NASDAQ: CVLT) is on sale due to its disappointing guidance this week.  The 21% drop to $18.50 would not likely make any lower-premium buyout more likely to be approved as the 52-week range is $15.60 to $24.51.  That recent high is an all-time high though and a Goldman Sachs strategist had this as a potential buyout candidate earlier this year.  Its Simpana platform aims to help enterprises manage data growth while cutting costs and adding security via cloud integration, deduplication, recovery, efficiency, virtualization, remote and branch office integration, and more.  Valuations are an issue, although the 21% drop leaves a market cap at just about $800 million.

• Charles River (NYSE: CRL) downgraded from Buy to Neutral at UBS.
• Charles Schwab (NASDAQ: SCHW) started as Neutral at UBS.
• Cincinnati Bell (NYSE: CBB) downgraded from Outperform to Peer Perform at Bear Stearns.
• Hertz Global (NYSE: HTZ) downgraded from Buy to Neutral at Banc of America.
• Force Protection (NASDAQ: FRPT) started as Sell at Stanford Global Research.
• MGIC Investment Corp. (NYSE: MTG) downgraded from Neutral to Sell at Goldman Sachs.
• SAP AG  (NYSE: SAP) downgraded from Outperform to Underperform at Credit Suisse.
• Ulta Salons (NASDAQ: ULTA) started in new coverage: started as Outperform at Wachovia; started as Overweight at J.P.Morgan; started as Neutral at Piper Jaffray.
• Merrill Lynch downgrades brokers: cuts J.P.Morgan (NYSE: JPM) to Neutral from Buy, cuts Wachovia (NYSE: WB) to Sell from Neutral; cuts Bank of America (NYSE: BAC) to Neutral from Buy.

Jon C. Ogg
December 12, 2007

Jon C. Ogg
June 14, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.