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
See Cramer's multi-million dollar portfolio for FREE and get his new book Get Rich Carefully! Learn More

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), the epitome of runaway tech success and rampant market outperformance, now pays a dividend, which it initiated this March. Cisco Systems (CSCO), 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Perhaps the concept is outdated that tech companies, by paying dividends, are signaling that they have no "better" use for the cash.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.

Stock quotes in this article: AAPL, CSCO, DELL, AMAT 

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

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
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, 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
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

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

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
DOW 16,408.54 -16.31 -0.10%
S&P 500 1,864.85 +2.54 0.14%
NASDAQ 4,095.5160 +9.2910 0.23%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs