9 Well-Established Companies That Just Refuse to Pay Dividends

March 6, 2015 by Jon C. Ogg

Money background. Close-up.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.

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.

Dollar General

Dollar General Corp. (NYSE: DG) is now going to have to figure out a way to differentiate itself from a combined Dollar Tree and Family Dollar. The two companies will be much more equally yoked rivals, except that Dollar General will now not be bogged down with divesting or painfully integrating thousands of stores. Dollar General even said that it would allow Family Dollar to continue its dividend policy at one point, so why wouldn’t it embrace a dividend now that the deal is dead?

It is going to be difficult for dollar stores to grow by the same rate as before, but this remains a secular theme for investors. What makes this even more interesting is that Dollar General now has all its private equity backers out of the company, and the years ahead, for it and its peers, are likely to come with price wars and at least some growing pains.

With the merger idea having all but formally died, now it seems that a Dollar General dividend policy’s time has arrived. In a world of activists and intrusive institutional shareholders, it is surprising that the company has not yet been pressured to begin paying dividends. With a market cap of almost $22 billion, being valued at 20 times trailing earnings limits how much this company can pay. Earnings estimates are $4.00 per share for the year ahead, and a $1.00 dividend would generate a yield of 1.4%. Would a $1.00 dividend be ironic?

ALSO READ: 5 U.S. Companies Focused on Returning Capital to Shareholders

eBay

Though it has long been a target of investors for lower valuations and growth, the reality is that eBay Inc.’s (NASDAQ: EBAY) business has matured. Carl Icahn has won in his battle to get eBay and PayPal to go separate ways. Still, it is amazing that eBay has never paid a dividend. It is the leader in auctions by far, and PayPal has been a trusted platform for years. Despite all this, shares are close to all-time highs. The only thing left to do is to implement a dividend policy. Unfortunately, shareholders likely will have to wait until after the breakup of the companies before any dividends are paid. Even then, both eBay and PayPal may choose to look for acquisition targets that bring more rekindled growth.

If eBay was going to stay together rather than to break itself up, there would be much louder calls for a dividend. As long as the stock remains close to all-time highs and as long as the breakup remains under way, eBay may simply avoid being called a dividend sinner. Still, eBay has a $70 billion market cap, it is valued at under 19 times expected earnings and it has about $14.6 billion in liquidity, now that it has bought back a few billion worth of stock.

Electronic Arts

Electronic Arts Inc. (NASDAQ: EA) was a company that had been dead money up until the latest console upgrade cycle. Its stock had tanked, but it has recovered handily. It has been public since 1989 and has split (two for one) four times with a 100-times return since its initial public offering. Now a slew of new games and a console upgrade cycle have brought EA shares back to above $55. This is now within striking distance of 2005 highs for the stock.

Still, its performance is now to the point that EA is worth 22 times expected earnings. With almost $3 billion in cash and short-term investments in hand and a market cap of $17.5 billion, what else is there for EA to do to get shareholders excited again? The console upgrade cycle is now two holiday seasons old.

Electronic Arts has a solid game lineup, including Battlefield, Madden Football, NCAA Football, NHL, Mass Effect, Dragon Age, Titanfall, The Sims, and then many more titles and series coming ahead. EA announced a $750 million share repurchase plan in 2014, and it has been buying back shares at much higher prices than when the plan was announced. Using one-fourth of its expected earnings for a dividend would signal that the company believes it can easily sustain better than a 1% yield that can be grown through time. GameStop, the primary retailer for the video game sector, has a dividend that was just raised and will have a 3.6% yield for new investors.

ALSO READ: Despite Stock Market Highs, 13 Major Dividend Cuts

Express Scripts

This pharmacy benefit management company has grown its market cap to over $61 billion, versus the $48 billion in 2013 when we first called Express Scripts Inc. (NASDAQ: ESRX) a potential dividend payer down the road. The reality is that it has now completed its giant merger with Medco Health Solutions, and it has been a public stock for about 20 years. Despite numerous splits, this one has never paid a dividend. With adjusted earnings per share of $4.88 in 2014 and guidance of $5.35 to $5.49 in earnings per share in 2015, trading at less than 16 times expected earnings is not out of the realm for a dividend.

The one issue that may get in the way in 2015, and maybe even the start of 2016, for Express Scripts is that it has a cash and equivalents balance of about $1.8 billion, versus long-term debt of $11 billion. Still, the company did reduce long-term debt by over $1 billion in the past year, and it has another $2.5 billion in long-term debt maturing soon. In 2013, Express Scripts had close to $15 billion in debt from the buyout.

Express Scripts was noted two years ago as being a standout by not paying a dividend. We have been surprised that shareholders have not made more calls to pay a dividend, but we expect those calls to grow once the debt level creeps lower. With even more debt being paid down in 2015, perhaps cash flow and debt servicing metrics will allow a dividend announcement to come later in 2016 or in 2017. Express Scripts has split its stock (two for one) six times since 1994.

Google

Google Inc. (NASDAQ: GOOG) may seem a bit rough to be calling for a dividend, but its languishing share price and its split shares (GOOG/GOOGL) have made the king of search much more difficult for investors to know what it is that they really own. The share split was a masquerade of a power grab by Larry Page and Sergey Brin, and now the company has wandered off into so many directions that its search operations are effectively acting as a piggy bank for Google’s venture capital and skunkworks projects (there are literally too many to easily count). The company has a treasure trove that is approaching $60 billion in cash, and Apple is currently eating Android’s lunch with the wild success of the larger format iPhone 6 models.

With Google’s stock being range bound since late 2013, many investors want to know what it is that Google will do to refocus. There is just one problem here: Larry and Sergey are in such strong control of the shares that no activist can make any noise at all in a voting manner, and the split gave them control that they can tell their shareholders they know what they are doing. We are no longer alone in the call for a dividend. Barron’s recently suggested that Google could comfortably pay a 2% dividend yield and still repurchase 3% to 5% of its shares annually.

ALSO READ: Jamie Dimon Readies J.P. Morgan Investors for Much Larger Dividends Ahead

United Continental

United Continental Holdings Inc. (NYSE: UAL) may need to just go ahead and change its name back to United, but it also needs to begin paying its shareholders a dividend. Airline stocks have doubled just over the past year, and now they operate with less competition, greater pricing power and an ability to pass on whatever charges they can think of to passengers.

Last summer United announced that it would spend $1 billion of its almost $7 billion held in cash at that time for share buybacks over three years. The reality is that United just does not want to be very aggressive in redeploying capital to shareholders. Southwest already pays a dividend, and American Airlines last summer also said it would begin paying a dividend. These both yield less than 1%, so it is not as though United would have to announce a stunning 2% dividend yield or anything close to it.

United Continental is the king of airlines with its $26.5 billion market cap, and it is expected to hit $40 billion in 2016 revenue. Low fuel prices are an automatic pay raise for earnings right now, and the stock trades at less than seven times expected earnings. With over $10 billion in long-term debt, United could pay out less than 10% of its earnings and still have the best yield of the legacy carriers, while being able to fund buybacks, debt servicing and contingencies. Who knows, maybe Warren Buffett would even start investing in airlines again if they all paid dividends.

Urban Outfitters

Apparel retailer Urban Outfitters Inc. (NASDAQ: URBN) has performed well through time, but its rapid growth of a decade ago has slowed. It also now has been public for more than 20 years. Urban Outfitters operates more than 500 stores under the brands of Urban Oufitters, Anthropologie, Bhldn, Free People and Terrain, and it has wholesale and Web operations.

With a $5.1 billion market cap, the retailer recently announced a 20 million common share repurchase plan, and that is in addition to the 2.3 million shares under the old plan. Urban Outfitters has not really run out of opportunities, and it can keep buying back stock. The stock peaked above $40 back in 2013, and it has been in a $30 to $40 trading band for two and a half years. At 20 times next year’s earnings estimate, Gap’s market cap is three times its own, but Gap carries a 2.2% yield.

Urban Outfitters could easily keep its buyback plan alive opportunistically on pullbacks and offer a $0.38 dividend for a 1% introductory yield without even paying 20% of its normalized expected income from operations. Without any serious long-term debt, there is even a chance for a light bit of leverage, if the company wanted to be more aggressive. At this point, it seems obvious that Urban Outfitters could begin working to amend its credit facility to accommodate a dividend, if it chose to.

ALSO READ: 5 Super High-Yield Dividend Stocks to Buy

**********************

After looking at the list of dividend sinners and dividend misers, we certainly cannot expect that every one of these outfits will suddenly begin paying dividends just because they can. We have already admitted that some companies are intentionally excluding themselves from the dividend payers. Some companies also may have too much of their cash locked up outside of the United States and would have to pay too steep of a tax to repatriate that capital. That being said, a good number of these companies should start to consider a dividend payment at some point, later in 2015 or in 2016. Activist investors have been aggressive in recent years, and in many cases the aim was to force companies to pay dividends or have large stock buybacks.

The last page of this report shows a quote, if available, either from recent press releases, investor FAQ sites or annual reports, showing what each company has said, verbatim, on the matter of dividends. Some of these of course would make one believe that the companies will never pay a dividend, but these statements often remain in place and are referred to by the company right up until a policy change is put in place.

These are the verbatim comments from each company, with a source of the comments cited as is on the proper websites.

Bed Bath & Beyond

The Company has not paid cash dividends on its common stock since its 1992 initial public offering and does not currently plan to pay dividends on its common stock. The payment of any future dividends will be determined by the Board of Directors in light of conditions then existing, including the Company’s earnings, financial condition and requirements, business conditions and other factors. (2014 Annual Report)

Biogen Idec

We have not paid cash dividends since our inception. While we historically have not paid cash dividends and do not have a current intention to pay cash dividends, we continually review our capital allocation strategies, including, among other things, payment of cash dividends, stock repurchases, or acquisitions … (2014 Annual Report)

Does Biogen Idec have a dividend reinvestment plan? Biogen Idec does not pay a dividend therefore does not offer a DRIP. (Investor Relations FAQ)

ALSO READ: Merrill Lynch’s Top Dividend-Yield Stocks to Buy

Dollar General

The remaining terms of our prior proposal, including permitting Family Dollar to pay its customary quarterly dividend consistent with past practices through closing, continue to apply. (Sept. 2, 2014 Offer for Family Dollar – Enhanced Proposal)

We have not declared or paid recurring dividends subsequent to a merger transaction in 2007. Any decision to declare and pay dividends in the future will be made at the discretion of our Board of Directors and will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions and other factors that our Board of Directors may deem relevant. (2014 Annual Report – Dividends)

Electronic Arts

Expected dividends None (2013) … We have not paid any cash dividends and do not anticipate paying cash dividends in the foreseeable future. (2014 Annual Report)

eBay

Dividend Policy. We have never paid cash dividends on our stock and do not anticipate paying cash dividends in the foreseeable future. (2013 Annual Report)

Express Scripts

Dividends. The Board of Directors has not declared any cash dividends on our common stock since our initial public offering and does not currently intend to declare any cash dividends in the foreseeable future. (2013 Annual Report)

Google

Dividend Policy. We have never declared or paid any cash dividend on our common or capital stock. We intend to retain any future earnings and do not expect to pay any cash dividends in the foreseeable future. (2014 Annual Report)

ALSO READ: With Oil Cut in Half, Will Any of the Majors Cut Dividends?

United Continental Holdings

UAL and United did not pay any dividends in 2013 or 2012. Under the provisions of the Company’s Credit and Guaranty Agreement, dated as of March 27, 2013 (the “Credit Agreement”), and the terms of certain indentures to which UAL or United (or both of them) is a party, UAL’s ability to pay dividends on or repurchase UAL’s common stock is restricted. Any future determination regarding dividend or distribution payments will be at the discretion of the Board of Directors, subject to applicable limitations under Delaware law. (2013 Annual Report)

Urban Outfitters

Our current credit facility includes certain limitations on the payment of cash dividends on our common shares. We have not paid any cash dividends since our initial public offering and do not anticipate paying any cash dividends on our common shares in the foreseeable future. (2014 Annual Report)

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