Apple to Cisco Lead Record Dividends as Google Holds OutAdam Satariano and Shin Pei
Technology companies are paying out dividends at the fastest pace in more than a decade, boosting cash returns to appease investors dismayed by slowing growth.
Led by Apple Inc. and Cisco Systems Inc., technology companies in the Standard & Poor’s 500 Index distributed $10.8 billion in dividends in the most recent quarter, up from $5.1 billion in the same period in 2010. They paid a record $11.9 billion in dividends in the previous quarter, according to data compiled by Bloomberg.
Their average dividend yield, a metric for measuring payments in the past 12 months as a percentage of market value, stands at 1.21 percent for technology companies, the first time it has exceeded 1 percent in at least 15 years, the data show.
Apple, Cisco, Dell Inc. and their peers have a total of $590 billion of cash on hand, up from $508.5 billion a year ago and $436.5 billion two years ago, according to data compiled by Bloomberg. Dividend payouts are likely to keep rising as once-cash-strapped startups become larger, slower-growth companies -- a shift that may raise expectations that holdouts such as Google Inc. will follow suit, said Jennifer Koski, a finance professor at the University of Washington in Seattle.
“These companies are now grownups,” Koski said. “They are more developed in their life cycle, they are profitable and they don’t need as much in terms of capital.”
The cash reserve numbers are likely to be even larger when technology companies start reporting quarterly earnings, with Intel Corp., Microsoft Corp. and Google announcing results next week. Apple’s report will follow on July 23.
The average per-company payout for hardware and software makers has reached $154.9 million, compared with $151.1 million for all companies in the S&P 500, according to data compiled by Bloomberg. That’s a shift from years past, when technology firms traditionally avoided dividends out of concern that they signaled a slowdown in innovation and growth, said Barry James, president of James Investment Research Inc. The firm oversees about $3.5 billion, including shares of Microsoft, which initiated a dividend in 2003.
“It takes off some of the growth luster,” James said.
Apple for years held its ground, with late co-founder Steve Jobs spurning investor requests for a dividend before he handed the reins to Tim Cook, who became chief executive officer in August 2011. In March 2012, Apple unveiled its first dividend in 17 years, heeding investors who had been clamoring for a bigger slice of the company’s cash pile, which at the time had swelled to almost $100 billion, bolstered by demand for iPhones and iPads.
That wasn’t enough for some investors, as the Cupertino, California-based company continued to rake in money, boosting its cash hoard to $137.1 billion at the end of last year. Investors, led by hedge-fund manager David Einhorn of Greenlight Capital Inc., lobbied Cook to return more money as Apple’s stock price languished.
In April, the company unveiled a plan to add $55 billion to its dividend and buyback plan, for a total of $100 billion. The announcements came the same day Apple reported its first profit drop in a decade, and were followed in May by a congressional hearing at which senators accused the company of using loopholes and offshore entities to avoid paying some U.S. taxes.
The industry’s dividends are rewarding firms such as BlackRock Inc., Vanguard Group Inc. and State Street Corp., which are the largest shareholders in both Apple and Cisco.
The rising payouts also make technology firms more attractive to value investors, or those who are looking for stable and steady returns, a shift for an industry that has long been a favorite of hedge-fund managers and investors looking for fast gains, Koski said.
Still, technology companies’ payouts remain a drop in the bucket compared with the cash they generate each quarter. The industry produced $57.4 billion in cash flows in the first quarter, excluding dividend payments, according to the data. There have only been three other quarters since 2001 where that cash figure was higher.
The new wave of payouts will increase pressure on those technology companies with big balance sheets that don’t pay a dividend, James said. Of the 70 companies classified by the S&P 500 as technology, 36 pay dividends, according to data compiled by Bloomberg.
Microsoft, Intel, International Business Machines Corp. and Oracle Corp. are among the technology companies that have paid dividends since before 2010 and have steadily increased the payments.
Google, owner of the world’s largest Internet search engine, doesn’t pay a dividend, even though it has $51.6 billion of cash and investments. Tim Drinan, a spokesman for Google, declined to comment on the possibility of a dividend.
“People have to get their head around the psychology of this and change their mindset,” James said. “It’s a perception problem.”