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TheStreet Open House

Google May Follow Apple on Tax-Dodging Dividend

Stocks in this article: AAPL GOOG IBM MSFT CBS

NEW YORK ( TheStreet) -- Google (GOOG) may follow its Silicon Valley competitor Apple (AAPL - Get Report) in paying out a dividend, amid increasing scrutiny from the public on how both companies manage their mounting cash in low-tax countries like Ireland.

Like Apple, however, Google may wait until its bank account swells to about $100 billion, according to an industry analyst, before making a big move on a dividend. The web search titan may also finance dividends or share buybacks to avoid Uncle Sam, as Apple did earlier in April when it announced a $100 billion return of capital over multiple years and issued $17 billion in low-cost debt.

Google shareholders shouldn't expect dividend payments anytime soon, even if the Larry Page and Sergey Brin founded company now is the largest in the world by market cap without a dividend.

"Today we are making two predictions. First, Google will not return cash to shareholders during the next two years. Second, it will return cash to shareholders sometime in late 2015 or 2016," Carlos Kirjner, an analyst at Bernstein Research wrote in a Friday client note.

Already, Google is being pressed on how it deploys its earnings, given the nearly $50 billion in cash and marketable securities on the company's balance sheet. Of that $50 billion only 20% is held onshore, meaning the company may look to Apple's dividend as a template if it begins returning money to investors.


Kirjner believes Google will hold onto its cash over the next few years for strategic reasons such as acquisitions or large capital investments, however, its money generating web search business could eventually bloat the company's bank account and spur a dividend.

Google, after all, has been far more acquisitive than Apple in recent years, buying Motorola Mobility, YouTube and Android, all in significant strategic deals that's bolstered the company's overall spending. Meanwhile, the company continues to R&D spending on various projects, including Google Glass, a self-driving car and Google X.

"We ask ourselves the question... are there real options for us actually to use the cash from a strategic perspective? And we've come to the conclusion that it is a real strategic asset for us right now with the ability to pounce," Patrick Pichette, Google's CFO said in a late 2012 investor conference call.

Pichette's comments and a natural earnings trajectory that could have Google generating $20 billion in free cash flow by 2016 setting up a dividend over the next 2-3 years, according to Kirjner.


For Google to stray from a dividend by 2016, the company's spending and acquisitions will have to "fall somewhere between the absurd and the insane," Kirjner wrote.

Kirjner, for instance puts prospective acquisitions of Visa (V), Facebook (FB), Microsoft (MSFT - Get Report), IBM (IBM - Get Report), Oracle (ORCL) and Sprint (S) in the 'beyond insane and absurd' bucket.

The analyst, however, sees deals for Discovery (DISCA), CBS (CBS - Get Report) and Viacom (VIAB) as among some that deserve consideration.

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