EA’s valuation has remained over 20 times expected earnings, with over $2.5 billion in liquidity and no serious long-term debt. It remains up for debate whether a 1% initial yield would bring in a slew of new investors, but the reality is that it can easily afford close to 70 cents a year, when EPS are forecast to be $3.10 this year and $3.57 next year.
The video game publishing giant announced a $1 billion stock buyback in 2015 after already having bought back more shares previously. Also, rival Activision Blizzard has paid a cash dividend since 2010 and it has grown its payout each year.
EA shares were recently trading at $70.81, with a consensus price target of $82.78 and a 52-week range of $48.22 to $76.92.
Micron Technology Inc. (NASDAQ: MU) has become a dream stock for value investors. The problem is that it has been a nightmare of a value trap for longer than even the most sophisticated investors would have imagined. Shares had risen handily to over $35 in late 2014, after it acquired Elpida, but Micron shares have fallen and fallen, briefly dipping under $10 in January of 2016.
There may be issues here preventing aggressive dividends, but being valued at less than five times trailing earnings (even if that is 10 times a blended forward earnings estimate) would indicate greater expectations for dividends.
Micron said in its most recent annual report that it has not declared or paid cash dividends since 1996, and that it does not intend to pay cash dividends for the foreseeable future. Another dividend hiccup may be tied to Japanese proceedings and restrictions around MMJ Group. That being said, nothing lasts forever.
Micron’s $5.6 billion cash holdings match up against an expected $5.3 billion to $5.8 billion in planned 2016 capital spending. Micron did authorize a share buyback plan in 2014, and most of the profitable chip stocks now pay solid dividends.
Shares of Micron were trading at $10.65. The consensus price target is $18.15, and the 52-week range is $9.31 to $32.84.
After nearly 10 years since its spin-out of NCR, Teradata Corp. (NYSE: TDC) has had a hard time recently growing in storage and data, and its revenue growth now is expected to be in contraction. Still, there may be an earnings floor as investors are expecting over $2.00 in EPS here, despite a drop from 2014.
A big stock drop has taken Teradata down to under $23, from $47 in 2015, but this was a much more grand $70 and $80 stock in 2012. The company has a pretty clean balance sheet, and it already has begun repurchasing its common stock aggressively in 2015.
When the market will not give a technology company a valuation of more than 10 times expected earnings (and with expected cost cuts and gross margins of close to 50%), it may be time to do more than just repurchase shares as a message of earnings confidence. Now think about 10% of operating earnings being used to pay dividends, not much on the surface, but that alone would give close to a 1% yield that has plenty of room to grow. Other storage companies have started paying dividends.
Teradata shares have traded at $22.98, with a consensus price target of $26.23 and a 52-week range of $21.98 to $47.03.