This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Don't Scoff at Tech Dividends

NEW YORK ( Real Money) -- Recently, Bloomberg ran a story suggesting that the decision by certain tech companies to pay higher cash dividends in 2012 was a show of weakness and in fact a heads-up on a coming bear market in their stock prices.

This observation was based on:

1.) Conventional thinking that technology companies are investable only when they are in their fast growth stage and not as mature businesses.
2.) Very short-term observations about a handful of tech companies that had recently raised their dividends, compared with those tech companies that did not increase their payouts.

We look a bit askance at this. First, on the basis of a short reporting period, the article purports to make a much more general point that paying dividends by tech companies is a sign of lost mojo, of -- dare we say it -- maturity, and all the unexciting things that go along with that status.

There are a few problems with this thesis. First of all, Apple (AAPL - Get Report), the epitome of runaway tech success and rampant market outperformance, now pays a dividend, which it initiated this March. Cisco Systems (CSCO - Get Report), another tech giant, had been in the doldrums until it raised its dividends this August.

Some may say that these are the exceptions that prove the rule. But even if the correlation of tech companies' short-term market performance and dividends is less than clear, the article does raise the question of the implications of tech companies paying a dividend.

Perhaps the concept is outdated that tech companies, by paying dividends, are signaling that they have no "better" use for the cash. We believe this for a few reasons.

In some cases, companies that kept all their cash often misspent it on unprofitable initiatives or ill-conceived acquisitions. This kind of thinking reigned supreme when these companies were trading at astronomical price-to-earnings ratios. Paying out cash would have shone a harsh and unflattering light on those multiples.

Today, taking shareholder needs into account is indeed a sign of maturity, and this should be considered a very favorable development.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
DELL $0.00 0.00%
AAPL $129.62 -2.20%
AMAT $19.99 -0.74%
CSCO $28.95 -1.06%
FB $79.34 -1.50%

Markets

DOW 18,041.54 -190.48 -1.04%
S&P 500 2,104.20 -21.86 -1.03%
NASDAQ 5,032.7510 -56.6110 -1.11%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs