I'm a fan of dividends, plain and simple. I believe good, stable dividends say a lot about a company, including the strength of its business and management's view of shareholders. Not to mention that dividend-paying stocks have shown a tendency to outperform their nonpaying counterparts.
Sure, there are good reasons for a company not to pay a dividend, but if you ask me, there are many more bad reasons for not paying a dividend. And I happen to think that these three companies are badly shortchanging their shareholders by keeping the d-word out of their vocabulary.
Can we please see an iDividend?
Before I say anything more, let's be clear about one thing: Tech companies can and do pay dividends. Intel
Getting back to Apple, take a gander at the company's balance sheet. At the end of the year, it had a massive $25 billion stockpile of cash and equivalents and not a lick of debt. Wow, goodie! What an impressive balance sheet! But guess what, investors? That cash is sitting around doing diddly-squat for you. A close reading of Apple's most recent 10-K filing shows that the interest rate earned on that cash was 1.4% for 2009. That's just plain ugly.
And it's not like the company has a legitimate use for all of that cash. Over the past 12 months it produced $12 billion in operating cash flow and spent a piddling $1.2 billion on capital expenditures. As for acquisitions, the company hardly has a track record of making any acquisitions, let alone multibillion-dollar acquisitions.
Bottom line? That cash is just accumulating dust. Man up, Apple, and start doing right by your shareholders; start paying a dividend.
Google needs to Google "shareholder friendly"
Fellow tech hotshot Google
Google's cash retention isn't quite as egregious as Apple's, because the company does tend to spend a good deal of money on acquisitions. It's also recently shown a willingness to launch significant new capital projects.
But still, Google produces billions in free cash flow every year, which means that it's far more likely to add to its bank account than tap it. And while the smaller snap-on acquisitions that Google has mostly focused on, and testing the waters in new business areas, may be a fine idea, the kind of move that would make a dent in that cash pile would probably not be one that would serve shareholders well.
At the end of the year, Google held $3.7 billion in government agency securities, $2.5 billion in government notes, $2.1 billion in munis, $2.8 billion in corporate debt, and $1.6 billion in agency residential mortgage-backed securities. Is this an Internet advertising specialist or a fixed-income bond fund?
Divest the mutual fund, Google, and put the money back in the hands of your shareholders.
Think about the health of your shareholders
Health insurer WellPoint
Sure, sure, bring on the "yeah, buts." The industry has been rocky lately, there's the threat of health-care reform, and cash balances need to stick around to pay off insurance claims. As far as health-care reform goes, that's pretty much a nonissue at this point. If something actually does squeak through, it will likely be completely toothless and have little negative impact on the major insurers.
As for the other excuses, when I look at WellPoint's cash flow statement, I see that it has spent close to $17 billion on share buybacks over the past four years, so apparently management thinks it has some extra cash to play with.
Surely all those buybacks are shareholder friendly and good, right? To put it lightly, I hate share buybacks. In theory they're fine, but then again, Communism is also fine in theory. Too many companies have spent too much shareholder cash making ill-advised buybacks.
Get your hands on some good, sturdy pens, WellPoint, and start signing some dividend checks.
Now don't get me wrong, I commend all three of these companies -- Apple, Google, and WellPoint -- for building such successful businesses. But for the sake of their shareholders, I think all three should take the padlock off the vault and start sharing the wealth.
Ready to see companies that do pay back their shareholders? Fellow Fool Todd Wenning has the best dividend stocks of the decade.