The 2012 Dividend Sinners: 20 Companies That Don't Pay Dividends But Should
Google Inc. (NASDAQ: GOOG) announced a fake dividend, effectively which was a 2-for-1 stock split via a new class of shares. The move of the split was to effect a seizure of control that would continue ahead for Google’s founders. The search giant has seen its stock stuck in a range despite its growth and it is fighting for the most popular destination on the web with Facebook, Inc. (NASDAQ: FB). The management under Larry Page and Sergey Brin is now without the adult supervision of Eric Schmidt and the company seems overly eager to make investments and acquisitions which are not necessarily core to the business model of generating profits from the internet. Google has a market value of $184 billion and it recently had close to $50 billion in liquidity without considering its Motorola acquisition. Google can easily pay a dividend, even of the one-time payouts, to its shareholders.
Jack In The Box Inc. (NASDAQ: JACK) may have had better commercials than its fast food peers before, but it does not pay a dividend like most of its peers. It trades at almost 18-times expected earnings, and it has a market capitalization of about only $1.1 billion on an expected nearly $2.2 billion in annual sales. The growth story here has ended for the most part, so the company needs to figure out that the McDonald’s Corporation (NYSE: MCD) effort of returning a significant portion of earnings to holders was one thing that helped shareholders. That being said, the balance sheet is more leveraged against its liquidity as of now and around $25.00 the stock is getting up to the peak of a multi-year high around $26.00 or so. It did have a 2-for-1 stock split in 2007 but its FAQ under the investor relations site notes, “We do not anticipate paying dividends in the foreseeable future.” Jack in the Box either needs to do something with its Qdoba Mexican Grill asset (over one-fifth of the total store count) or it needs to start returning capital to shareholders is it wants to get above the highs of its trading range.
Symantec Corporation (NASDAQ: SYMC) has been stuck in the mud for longer than anyone would care to remember after its acquisition of Veritas, leaving investors with an identity crisis over security versus storage despite it continuing to grow its sales. At $14.57, this stock is at the bottom of a long-term trading range of under $15 to about $20 per share. The company has over $3.1 billion in cash and liquidity against about $2 billion in long-term debt. Another boost is that it trades at under 9-times expected earnings with a market cap of about $10.5 billion. Symantec has already gone through share buybacks and its FAQ under the investor site still says, “Symantec has never declared cash dividends and presently intends to continue this policy.” It needs to end this policy and begin to aggressively start repaying shareholders with a dividend as the stock buybacks are just not working.
Teradyne Inc. (NYSE: TER) is a company which many investors do not know about but they should. It is in testing for semiconductors and for all sorts of electrical systems . This one has also been public since about 1970 and it has not paid out any dividends outside of share buybacks. Teradyne trades at less than 8-times this year’s expected earnings and its market capitalization is about $2.6 billion. Outside of the recession, this $14.00 stock has spent much of the last decade between $10 and $20 per share. Teradyne also has more than $750 million in liquidity on-hand and trades at only about 1.5-times book value. A real dividend policy would likely do its shareholders some good here. Unfortunately, one limitation may be that much of its capital may be housed outside of the U.S. and would be taxed too high if brought back in.
United Continental Holdings, Inc. (NYSE: UAL) is now the biggest airline by revenues and by market cap ($7.3 billion) now that United and Continental have merged into an airline giant. The airline segment only has Southwest Airlines Co. (NYSE: LUV) offering a small 0.4% dividend yield and the rest of the legacy carriers are hoarding cash as AMR is bankrupt. Still, UAL has over $7 billion in cash and liquidity even if its total liabilities are many times that for the cost of financing a jet fleet. UAL is now moving closer to the $40 billion in revenue mark and it trades at less than 5-times its expected earnings. Warren Buffett always said “Remind me to never buy an airline” but perhaps he might consider one if it lived by a strong dividend policy. Valuing an airline now is no easy task and a dividend policy might unify the analysts even more than the three upgrades we recently saw at once in the sector.
Urban Outfitters, Inc. (NASDAQ: URBN) was in the first half of the last decade what Gap Inc. (NYSE: GPS) was in the 1990s. Its stock has since become stuck in a range while the retail apparel sector has consolidated under private equity mergers. It trades at about 19-times expected earnings and its value is about $4 billion in market cap. It also has a fairly high cash and liquidity balance of about $360 million and no real long-term debt other than leases and deferred liability charges. With estimates of $1.46 EPS this year, returning 20% of non-GAAP earnings to its holders would generate a dividend yield north of 1% and it has room to grow its payout ahead without wasting growth opportunities for expansion ahead.
Western Digital Corporation (NASDAQ: WDC) does not pay a dividend like its hard-disk rival Seagate Technology PLC (NASDAQ: STX). Both companies recently completed large drive mergers and that may cap the ability to make large payouts. Western Digital announced just in May an additional $1.5 billion that was to be allocated toward share buybacks to work down its 260 million share count and the FAQ area of its site confirms “WD does not currently pay dividends.” We doubt that this will jump suddenly into being a large dividend payer, but it does stand out with nearly an $8 billion market value and it trades at only about 4-times expected earnings. If the company wants to minimize some fears about the threat of flash-drives then it should signal this by committing to a strong dividend policy.
Yahoo! Inc. (NASDAQ: YHOO) is the internet turnaround which cannot turn around. We consider it leaderless at the moment, it was firing yet another round of workers, and it trades at half of it could have been bought out for had Jerry Yang not been allowed to bring that cat-box toys out to the playground. The former internet king has perhaps a few billion that can be unlocked in international assets if handled properly and the company can ‘pledge’ the bulk of those assets to shareholder payouts. The market capitalization is still close to $19 billion with over $7 billion in liquidity (short-term and long-term) versus no real long-term debt. Yahoo! trades at just over 2-times tangible book value and perhaps it should make a more formal promise at planning shareholder payouts while it fights the likes of Google Inc. (NASDAQ: GOOG), Facebook, Inc. (NASDAQ: FB), and every other search and content play that lives on the web.
Zebra Technologies Corporation (NASDAQ: ZBRA) has been dead money despite its stance as winning in barcodes and RFID systems for retail and many other inventory management solutions. The company serves healthcare, manufacturing, retail, automotive, and many other sectors and it has been public since the early 1990s. Why Zebra Tech was never acquired by private equity during the land grab is a mystery, but shares have been stuck. The market cap is only $1.7 billion and it has about $350 million in liquidity with no real long-term debt to speak of. The company could easily adopt a 2% dividend yield without upsetting its growth nor without altering cash flows in a way that would pressure its balance sheet. Zebra’s stripes are showing an old-tech company that needs a new-world dividend.
So, now you have a great list of Dividend Sinners for 2012. Don’t expect all of these companies to just capitulate and start paying a dividend just because they should. Maybe one-fourth of them will capitulate. Activist shareholders could be far more aggressive in a few of these companies which have less board of director control than others. Regardless of the situation individually, many of these companies should understand that many fund managers, pension managers, and other new investors just will not look at investing companies as legitimate investments until companies pay a dividend.
JON C. OGG