Published July 28, 2011
| 24/7 Wall St.
If you have been a reader of 24/7 Wall St. for long, you know that we appreciate companies that pay dividends just about as much the investors who buy companies because of their great dividends. With all of the uncertainty in today’s markets and in today’s economy, having a solid dividend policy may be the key to keeping nervous investors from fleeing and going into cash or other assets that actually pay no income at all. Some of the greatest companies of today and yesteryear actually refuse to pay dividends to shareholders. For some companies, they can get away without paying a cent to owners because the value and growth is so strong. There is another list of “Dividend Sinners” which should be paying a dividend to holders and have just decided to control that cash in-house instead.
We have identified more than twenty Dividend Sinners. Our review focuses on Amazon.com, Inc. (NASDAQ: AMZN), Amgen Inc. (NASDAQ: AMGN), Apple Inc. (NASDAQ: AAPL), Bed Bath & Beyond, Inc. (NASDAQ: BBBY), Berkshire Hathaway Inc. (NYSE: BRK-A), Cincinnati Bell Inc. (NYSE: CBB), Dell Inc. (NASDAQ: DELL), Dollar General Corporation (NYSE: DG ), Dollar Tree, Inc. (NASDAQ: DLTR), eBay Inc. (NASDAQ: EBAY), Electronic Arts Inc. (NASDAQ: ERTS), EMC Corporation (NYSE: EMC), Express Scripts, Inc. (NASDAQ: ESRX), Flextronics International Ltd. (NASDAQ: FLEX), Google Inc. (NASDAQ: GOOG), Jack In The Box Inc. (NASDAQ: JACK), Nasdaq OMX Group Inc. (NASDAQ: NDAQ), Symantec Corporation (NASDAQ: SYMC), United Continental Holdings, Inc. (NYSE: UAL), Urban Outfitters, Inc. (NASDAQ: URBN), Western Digital Corporation (NYSE: WDC), Yahoo! Inc. (NASDAQ: YHOO), and Zebra Technologies Corporation (NASDAQ: ZBRA).
You can see that many of these are not technology giants. Many are. The aim is to handicap which companies still can get away without paying out income to their shareholders versus those which can and should. Some of the more obvious Dividend Sinners are the same as you have seen criticized before, but many of these are overlooked by the media and by investors alike. In some cases the lack of dividend payments is just ludicrous. Cisco Systems, Inc. (NASDAQ: CSCO) waited far too long to adopt a dividend policy and look what happened to its shares after inaction. Kohl’s Corporation (NYSE: KSS) took until this year before finally declaring a dividend while its direct competitors have paid dividends for years.
Again, some companies can get away without paying holders a penny. Our aim was to identify the highly able companies and those which lag peers enough that the dividend trend just needs to be considered by management of these companies. We looked at forward P/E ratios based upon next year’s estimates from Thomson Reuters, the return on equity (ROE) from Finviz.com, the current share price and a 52-week trading range, along with the market cap of each company. If applicable, we handicapped competitor and peer dividends and even noted how high of a dividend these companies could pay out.
Activist investors could have a field-day with at least a few of these dividend sinners…
Amazon.com, Inc. (NASDAQ: AMZN) is the online retail king. It has a forward price earnings multiple of 56 and a return on equity (ROE) of 16.3%. Its market cap is $100 billion. The recent share price was $222 and the 52-week trading range is $114.51 to $227.20. While much of the tone of this article might seem to be geared around a negative impact of a no-dividend policy, Amazon.com is actually in a different camp. At 58-times 2012 projected earnings, the question to ask is “how high of a dividend could it pay anyway?”… Wall Street has even been able to absorb habitually lower and lower margins as it ramps up its capital spending. With shares having now hit the $100 billion market cap and having hit fresh all-time highs, is there are reason to criticize the company right now? We predicted that it would be on of the next mega-cap stocks for a reason.
Amgen Inc. (NASDAQ: AMGN) is due with earnings shortly and its path has been a boring one for long enough. The largest independent biotech outfit has a forward price earnings multiple of 9.7 and a return on equity (ROE) of 19.4%. Its market cap is $51 billion. The recent share price was $54.00 and the 52-week trading range is $50.26 to $61.53. Investors hope and pray that Amgen will be the first of the big biotechs to finally declare a dividend. The call has been a longstanding call and the company has more than enough ample cash and patent protection to justify a healthy payout. With about $15 billion in liquidity and $10 billion in long-term debt, investors should ask the company to stop wasting the cash by repurchasing shares in the open market. It hasn’t worked as is the case with most share buyback plans. If it is not going to have a dividend, maybe it should consider growing into new arenas with a substantial acquisition. Our take is that Amgen is going to have to do something at some point soon and a dividend will do far better than a stock buyback plan.