Who's Next in Paying a Dividend?
Now that Apple (NAS: AAPL) has announced a dividend and a share-repurchase plan, we can all return to our lives and stop speculating on what it will do with its substantial cash hoard. Or we can turn our attention to other notable companies that could probably afford to pay dividends. That sounds like way more fun.
Of the companies that make up the S&P 500, around 400 currently pay a dividend. Apple now joins this illustrious group, but there are still many noteworthy companies, some sitting on piles of cash, that don't currently pay a dividend. While each company's situation is different, I believe that I have found a handful of companies that have the capacity to pay a dividend, returning even more value to shareholders. Before we do that, however, I wanted to see what impact the Apple buyback might have.
Just as good as a dividend?
A dividend isn't the only way for companies to increase shareholder value. Apple's announcement also includes $10 billion in share buybacks over the next few years, which represents only around 10% of its current cash balance. In a purely hypothetical exercise, if Apple were to spend all $10 billion right now and repurchase shares at around $600 per share, they would repurchase a total of 16.7 million shares. Using earnings from the past 12 months, earnings per share would increase from $35.14 to $36.07, benefiting current shareholders beyond the dividend.
Other cash cows without dividends
I looked at the 100 or so non-dividend payers of the S&P 500 to see whether I could identify companies with sizable cash accounts that could be used to pay dividends. The companies I found also happen to be among the larger companies based on market cap. While none of the companies I looked at has cash similar to Apple, they do all have earnings that would make a dividend possible and lucrative for investors.
Berkshire Hathaway (NYS: BRK.A) (NYS: BRK.B) is almost as famous as Apple for not paying dividends, but CEO Warren Buffett deploys the Berkshire cash in ways that most normal investors can't. Along with the board of directors, he also decided to authorize his company's first-ever share buyback last year, when the company's price-to-book value reached record lows. But we may not see a dividend from the megaconglomerate until Buffett is no longer in charge -- which is not something I like to think about.
Mature tech companies like Apple
Google (NAS: GOOG) is another company often mentioned with Apple when it comes to deploying its cash as a dividend, though the clamoring has been quiet for some time. Fellow Fool Rick Aristotle Munarriz proposed a Google dividend in December 2010, when the search giant was sporting just $33.4 billion in cash and marketable securities. With that number now approaching $45 billion, now is a good time to follow Apple's lead in paying a dividend.
Finally, there's another technology company with a surprising amount of cash. Though not close to the piles at the previously mentioned companies, Dell (NAS: DELL) currently has more than $14.8 billion in cash and short-term investments on its balance sheet. Recently raising their outlook on the company, analysts at Standpoint Research view the company as a bigger bargain than Apple,.
Surprisingly, this mature company doesn't currently pay a dividend, though it has repurchased a lot of shares over the past five years. Though the earnings performance of the company might not make a quarterly dividend a possibility, its commitment to share repurchasing almost acts as a de facto dividend, and it's something the company should be able to continue going forward.
Dividends are nice but not mandatory
I'm a proponent of dividends, but even I realize that not every company should be paying them. As in the case of Berkshire Hathaway, sometimes the company's management can make a better decision with its money than an average investor can. Whatever the reason a company has for not paying a dividend, sometimes a dividend can increase investment in a company by individual investors, as well as allow for institutional investors focusing on dividend stocks to invest in the company.
Only time will tell whether Apple's entry into dividend territory will get these others to follow its lead, but there are still numerous options available for those interested in dividend investing. In fact, our analysts have written a free report titled "Secure Your Future With 9 Rock-Solid Dividend Stocks" that identifies some great dividend-paying companies. Get your copy before it's too late.
At the time this article was published Fool contributorRobert Eberhardowns shares of Berkshire Hathaway, but he holds no other position in any company mentioned.Follow himon Twitter, or check out hisholdings and a short bio. The Motley Fool owns shares of Google, Apple, and Berkshire Hathaway.Motley Fool newsletter serviceshave recommended buying shares of Berkshire Hathaway, Apple, and Google; creating a bull call spread position in Apple; and writing covered calls on Dell. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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