Investing

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)

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.