Investing
9 Well-Established Companies That Just Refuse to Pay Dividends
March 6, 2015 7:15 am
Last Updated: March 6, 2015 10:26 am
Investors are still in love with dividends. After all, dividends can account for a large portion of total returns through time. With a bull market that is now six years old, the trend for years has been for investors to buy stocks that have solid dividends from companies that can raise those dividends. Still, there is a separate class of companies: those that simply refuse to pay dividends.Source: Thinkstock
24/7 Wall St. has identified nine solid companies that are on very stable ground but that just refuse to pay dividends to their shareholders. These would be considered dividend sinners or dividend misers.
With the market close to all-time highs and up 200% since the March 2009 V-bottom, now is a good time for investors to consider what investments they should own for the long haul and in their investment and retirement portfolios. Investors have done well by investing in growth and dividend stocks. But some of these growth stocks are starting to mature or are looking less stellar than in prior years. So, what happens when companies that can pay a dividend simply refuse to do so?
Many companies we have written about in the past few years with a call to begin paying a dividend have started to do so. These include Amgen, Apple, Cisco, EMC, Jack in the Box, Nasdaq, Teradyne and more.
The so-called dividend aristocrats are those companies that have hiked their dividends for 25 years in a row. So a group of companies that are too stingy to pay dividends when their shareholders would benefit from it, these should be called the dividend sinners or dividend misers.
ALSO READ: 5 Dividend Stocks to Buy as European Index Crushes S&P 500
As of the beginning of March 2015, it looks as though 78 companies in the S&P 500 simply do not have a dividend at all. It was not long ago that closer to 100 companies in the S&P 500 did not pay any dividend.
24/7 Wall St. is now calling on companies that actually may start to pay dividends rather than just those that should. The reason is simple. Amazon.com is quite satisfied having low earnings and therefore cannot. Berkshire Hathaway recently admitted that it could be 10 to 20 years before it pays out. And Yahoo has decided to use the Alibaba tracking stock spin-off as its dividend.
To keep the analysis and projections fair, 24/7 Wall St. included a back page that includes recent comments from each company we featured. These are the stance for or against dividends by the companies from recent press releases, annual reports or other shareholder communications. Their comments were kept verbatim in order to avoid any interpretation errors.
Here are the 2015 dividend sinners (or dividend misers) from 24/7 Wall St.
Bed Bath & Beyond
Public since the early 1990s, Bed Bath & Beyond Inc. (NASDAQ: BBBY) has been a massive growth story for years. The company had faced some serious growing pressure in recent years, but management turned to stock buybacks to juice up the returns again. Now shares are back closer to all-time highs again. What is amazing is that no dividend has been paid in a 20-year history. With only about 3% revenue growth being the norm, it is time to start rewarding investors here by paying them to own the stock.
Bed Bath & Beyond is worth about $13.6 billion in market cap, but it has bought back more than $7 billion in stock since 2004. It has only about $1.5 billion in long-term debt. Acquisitions have also been a source of growth, but at 15 times earnings, Bed Bath & Beyond could easily fund a 1.5% to 2.0% dividend yield — and still have more than enough liquidity and for opportunistic contingencies or for more buybacks, if they save the buybacks for when shares are weak.
ALSO READ: 12 Companies Expected to Raise Their Dividends Very Soon
Biogen Idec
It may be the third largest biotech outfit by market cap, but Biogen Idec Inc. (NASDAQ: BIIB) is barely above Celgene. The reason that Biogen Idec is being called on for a dividend sooner than Celgene is that it has higher current revenues and higher current net income. Biogen Idec has a slightly lower price-to-earnings (P/E) ratio and is still expected to have higher sales this year and in 2016.
Biogen Idec is still growing sales, but it seems very hard with a $99 billion market cap that it can make another 600% share price gain in the five-year period ahead as it did in the past five years. Amgen was the first big biotech to start paying a dividend, and now Gilead Sciences has joined the biotech dividend game. Biogen Idec has about $4 billion between cash and its short-term and long-term investments, and fortunately it has no significant long-term debt that will burden the company. Also it is the king of multiple sclerosis drugs.
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