Sirius XM, Dell to Investors: We Give Up

NEW YORK (TheStreet) --From time to time, a voice diverges from the crowd and gets things right.

After expressing discomfort over the financial media's collective decision to praise Dell's ( DELL) decision to issue a dividend, TheStreet's Marek Fuchs made the best point of all: ... Traders should be concerned (even if the media is not) that a company engaged in the cumbersome process of remaking itself in a fast-changing industry, should think thrice about giving their money away to shareholders. Acquisition and research and development are probably better uses of cash. Now there's a thought that might pay dividends.

That's exactly what I was thinking when I watched Maria Bartiromo interview Dell Chairman and CEO Michael Dell on CNBC. Talking about Dell's shift away from the consumer to the enterprise (enterprise accounts for about 80% of Dell's business), the CEO was as stiff and convincing as your favorite politician.

I do not have much of an opinion one way or the other on Dell's ability to successfully complete this transition. Given the broad range of well-established competition the company faces, I'm certainly not optimistic. And the idea of a dividend at this stage of the game actually frightens me.

Returning capital to shareholders. It's en vogue. In theory, it looks like an excellent move. What's wrong with providing investors a bit more wealth? Often, quite a bit.

I keep a majority of my portfolio in dividend-paying growth stocks. To a company, it's really impossible to question the logic behind or the veracity of the decision to not only issue a dividend, but buy back significant amounts of stock. Most of the firms I hold have been doing both for quite some time. Thanks to strong businesses, most increase the dividend on a consistent basis and not only continue, but raise the value of the buyback program.

I consider a dividend as well as a buyback a reward, not an entitlement. It's a way to spread even more prosperity among the masses. (We're a well-positioned, strong and sustainable company. You're in a relatively sound investment, so, here's some icing on the cake.)

Companies such as Dell bastardize what returning capital should be all about. It should absolutely not be used a pacifier. (Things are going to stink for a while longer. We're not sure how long or if they'll ever get better, so take this to hold you over.) If things get really bad, I guess it's better that shareholders received something before the creditors.

Dell is not alone in its ill-advised return of capital it really could put to work elsewhere. Juniper Networks ( JNPR) just announced a massive buyback. And Netflix ( NFLX) halted one that it should have never put on in the first place.

Give Juniper credit, though; at least it's honest. The company is clear -- it is doing this, in part, to offset dilution from the stock options it doles out to employees. Hopefully, unlike Netflix, Juniper will not end the buyback and then promptly fundraise $400 million and forecast losses.

Even though it has not actually paid a dividend and executed a buyback, Sirius XM ( SIRI) might be the poster child for so much of what can be wrong with them.

I don't think I'll ever forget Sirius XM CEO Mel Karmazin's appearance on Jim Cramer's Mad Money television program. That's when Mel told Cramer there's really nothing I can think of doing with our cash other than an acquisition. Since there's nothing out there he likes, all that's left is -- enter the old and tired line -- to return capital to shareholders.

Translation: We give up.

When their stock price is cratering, their business is uncertain and Wall Street has little confidence in their company's strategic-competitive futures, the most inept CEOs talk about dividends and buybacks. I'm almost shocked that Research in Motion ( RIMM) did not go that route.

In any event, investors have plenty of choices. Why in the world would they want to buy stock in a failing company given the wide range of available choices? A dividend and especially a buyback should not provide incentive. Don't fall for it.

If the words and actions a company uses to present its way forward are not enough to get you in a buying mood, don't fall for the trap. Dividends that amount to bribes should not do the trick. Neither should artificial supports for a falling knife of a stock price or way too many outstanding shares.

Investors want to see companies in growth industries grow. They want the cash on hand to go back into the business, particularly into innovation and competitive positioning. They do not want dividends, buybacks and lip service from company lifers and former salesmen.

If your forward-looking course appears valid, relevant and promising, investors will buy your stock. Now. Later. Eventually. There's no need to pull the latest, and not-so-greatest trick out of the bag of desperation.

At the time of publication, the author held no positions in the stocks mentioned in this article.

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