Tech Giants Need Dividends, Too

In early August, IBM (NYSE: IBM  ) issued $1.5 billion in debt. The 3-year notes had a coupon rate of 1%, which, according to Bloomberg, is the lowest coupon of all the 3,400 companies listed on the Barclays Capital Corporate U.S. Index of corporate-grade debt.

Now, just a month later, tech titan Microsoft (Nasdaq: MSFT  ) is reportedly considering issuing some new debt of its own. For a company flush with more than $35 billion in cash, it's hard to say that it is in dire straits of a cash infusion. However, with yields so low and sporting a triple-A credit rating, it may just make sense for a slow(er) growing company like Microsoft to leverage up.

Hopefully, though, Microsoft isn't mulling over an ill-planned acquisition or some strategic shift in business strategy. For shareholders who have seen a 30% loss in the past decade, the hope is that Microsoft will look for ways to finally return some value to shareholders.

Give me the dividends already
As the first of 70 million-plus baby boomers gets ready to retire next year, companies are going to be more and more cognizant of the fact that individual investors need income -- preferably in the form of dividends. Of course tech companies loathe the mere thought of dividends; such an idea implies the high-growing, innovative days of Silicon Valley childhood are over. But Microsoft already pays a dividend; yes, it's a paltry 2.07%, but still, it's something.

The blatant fact is that many technology stocks are overloaded with cash-rich balance sheets, and they face two options: reward shareholders through dividends or share buybacks, or pursue growth organically or by way of acquisition. We've already seen how out of hand M&A can get as Hewlett-Packard and Dell waged a premium-priced war over 3Par. And the sentiment I see from shareholders is this: Give me the dividends already!

I'm not one to advocate for financial engineering, but when it's really quite simple, such as "borrow at insanely low rates, invest elsewhere, and pay back money to shareholders" -- it's hard to lambast such a strategy. In that vein, let's check out which companies could possibly follow Microsoft in its path to issue debt and maybe, just maybe, some-day soon start paying a dividend:

Company

Current Dividend Yield

Cash/Debt (billions)

Google (Nasdaq: GOOG  )

None

$30.1/$0

Apple (Nasdaq: AAPL  )

None

$24.2/$0

eBay (Nasdaq: EBAY  )

None

$4.9/$0

Qualcomm (Nasdaq: QCOM  )

1.9%

$9.9/$1.2

Activision Blizzard (Nasdaq: ATVI  )

1.3%

$2.9/$0

Source: Capital IQ, a division of Standard & Poor's.

The Foolish bottom line
By no means is this the first article taking a stab at tech companies that refuse to shell out a healthy dividend. Analysts have been berating Apple for years. But now seems like a pretty interesting time, as investors are clamoring to dividend stocks for safety and income, and corporations seem to have more cash than ever.

What do you think -- should some of these tech all-stars start dishing out a dividend? Let it out in the comments below!

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Jordan DiPietro owns shares of Activision Blizzard. Google and Microsoft are Motley Fool Inside Value recommendations. Google is a Motley Fool Rule Breakers pick. Apple, Activision Blizzard, and eBay are Motley Fool Stock Advisor recommendations. Motley Fool Options has recommended a synthetic long position on Activision Blizzard, a bull call spread position on eBay, and a diagonal call position on Microsoft. The Fool owns shares of Activision Blizzard, Google, IBM, Microsoft, and Qualcomm. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


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  • Report this Comment On September 15, 2010, at 11:21 PM, ayamore wrote:

    For years people have talked about companies like eBay and others about paying dividends to their investors, and for years those companies did nothing. Times have changed. Baby boomers have the money to invest and you are right they want dividends to hold a stock. eBay stock is a good example, eBay is still in the hole from their last split at $58.00 share. A dividend would have been nice all those years while waiting for it to come back up. eBay today is at a lousy 24.00 dollars. I am a baby boomer and I want a dividend on my money invested. CD's bring nothing, banks and savings bring nothing. Plenty of good companies out there paying good dividend's yearly, why would anyone still hold a stock today that does not pay a dividend?

  • Report this Comment On September 16, 2010, at 12:09 AM, surfgeezer wrote:

    MCHP is fitting that bill nicely for me. Earnings and revenue both growing in these bad times, I expect future increases to enhance my ROI and the mark to market appreciation has been and should still be substantial. Encourage investors to read their quarterly reports and look at the numbers.

  • Report this Comment On September 16, 2010, at 11:53 AM, Patricia013 wrote:

    Ebay sends their revenue offshore. Some of that revenue is dividends they should be paying their stockholders - but never have. About the only money you can make off of Ebay is to buy their stock when they hit a low point - usually right after another dismal quarterly report - and sell when some of the analysts Ebay seems to have in their pocket start gushing about how Ebay is on the verge of exploding upward! Its all a big fat joke! This is a good company to just stay away from.

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