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)

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