Sunday, January 31, 2010

Loosen Up, Tightwads!

It would be interesting to study the returns each of these companies generates based on retained earnings. 


Many big companies with the financial wherewithal to pay dividends are being stingy about payouts -- for no good reason. By hoarding cash, the likes of Apple, Google, Cisco, Amazon, eBay, IBM and Amgen are doing their shareholders a disservice -- and it's time for that to change.

DIVIDENDS DO MATTER. THEY HAVE ACCOUNTED for more than 40% of the annual returns of the Standard & Poor's 500 since 1926, and more than 100% of the returns over the past 10 years -- the lost decade, during which the index declined.

Despite this, many financially strong companies don't pay a dividend. Among them: Apple, Google, Cisco Systems, Amgen, eBay, Dell and DirecTV. It's time for them to consider a change. Many simply are hoarding cash that properly belongs to shareholders.

Apple (ticker: AAPL) sits on almost $40 billion and has no debt. Google (GOOG) has $24.5 billion and no debt. Cisco (CSCO) has $25.1 billion of net cash.

Fifteen of the top 100 S&P 500 members, ranked by stock-market value, pay no dividend. And Berkshire Hathaway (BRKA), which soon will join the S&P, also is in that club.

It's understandable that Citigroup (C) and Ford (F) aren't paying dividends, given their financial setbacks, but nearly every other company on our list should follow the lead of Microsoft (MSFT), which began paying regular cash dividends in 2003, and even declared a $3 special payout in 2004 to reduce its huge cash hoard. The software giant still has $37 billion in net cash and investments. Steve Jobs, take note.

"Companies that are generating significant free cash should pay dividends," says Ross Margolies, portfolio manager of Stelliam Investment Management, a New York firm. "The companies that are saving cash for transforming acquisitions are doing their shareholders a disservice," he adds. Such acquisitions often signal that the growth of a company's core business is slowing.

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