Discounting the Dividend Effect, Part 2

The good news is that these companies have the wherewithal to pay dividends at these levels. The problem is that the valuations still appear stretched if fundamentals are poor. How do you justify a price-to-earnings ratio of 30 in a mature industry with lousy long-term growth prospects? You can't. But that just makes dividends all the more important, to create a floor for tech stocks.

Take the hint, tech investors.

Implicit in the advent of a dividend at Microsoft, of a 2% yield (up from no dividend at all) at American Power Conversion (APCC - commentary - Cramer's Take) and of the special $5 per share dividend at $11 per share Iomega (IOM - commentary - Cramer's Take) is a stark message for tech investors: There's too much capital in techland chasing too few opportunities. To take it a step further, the change in dividend policy at these three companies is a long-term bearish signal for Nasdaq investors. If growth opportunities were available, the last thing these companies would be doing is declaring dividends, regardless of the new tax law.

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Look for more from my Friday Q&A series tomorrow, when I'll take your questions on corporate governance and accounting. If you have any questions on this topic or on next week's "off-the-wall" theme (ask any question, the more off-the-wall, the better!), send me an email.

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Arne Alsin is the founder and principal of Alsin Capital Management, an Oregon-based investment advisor and portfolio manager of The Turnaround Fund, a no-load mutual fund. At time of publication, neither Alsin nor ACM held a position in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Alsin appreciates your feedback and invites you to send it to [e-mail]. Click here to receive Arne's latest favorite stock picks from his newsletter, The Turnaround Report.