There's an interesting story in shares of technology giant Hewlett-Packard (HPQ). This $57 billion computer company has caught considerable attention in the last couple of years for its biggest missteps, including the $11 billion acquisition of Autonomy, which destroyed considerable shareholder value. But investors have been ignoring the leaps and bounds H-P has made in the years since.
They've also been ignoring the hefty 13.33% shareholder yield shares have returned in the last year.
Hewlett-Packard is best known for its printer and PC businesses, units that generate around half of overall sales. The problem is that PCs are commoditized these days -- they've become a volume product, not a margin product. And that shift means that Hewlett-Packard has had to change its business materially in recent years. The firm has done an admirable job of moving more revenues to services, hardware and software for enterprise customers. Likewise, printers still provide attractive consumables sales -- printer ink is liquid gold to H-P.
Hewlett-Packard's real problem in recent years has been too much money. The firm entered 2010 with more than $13 billion in cash on its balance sheet, and the need to distance itself from the PC business. That's why management went on an ill-fated buying spree. But more recently, a combination of dividend payouts, share buybacks, and debt extinguishment has helped put $7.53 billion in investors' pockets.
That's a much better use of capital -- and it points to upside in H-P, particularly given its dirt-cheap valuation at current prices.