Dell Pays Shareholders $2 Billion This Year

Cash-rich tech stocks such as Dell (Nasdaq: DELL  ) and Cisco (Nasdaq: CSCO  ) are frequently berated for either not paying dividends (Dell) or not paying enough in dividends (Cisco). But the critics often ignore that both of these companies are serial buyers of their own stock -- which is financially better than a dividend, since dividends are ultimately taxed twice. Dell repurchased a net 13.91% of its shares from 2007 to 2010, the equivalent of a 3.3% annual and reinvested dividend, while Cisco bought back a net 6.7%, the equivalent of a 1.6% annual and reinvested payout. 

Dell is continuing its tradition this fiscal year. The company announced yesterday, in advance of today's annual analyst meeting, that it has repurchased $1.6 billion in stock this year and intends to purchase $400 million more by the end of this fiscal year, ending January 2012. That's a grand total of $2 billion, or the equivalent of paying a juicy 6.5% dividend for 2011. 

As a shareholder, I'm happy about this.

You may ask why, since I'm known to be a skeptic of dividends and, by extension, buybacks. And the answer is simple: I think Dell is grossly undervalued, something I've written about lots of times. Shareholders always benefit when management throws money at projects with abnormally high risk-adjusted returns …including its own shares. Cisco, I might add, should step up the buybacks for the same reason.

If Dell's shares (or Cisco's) were overvalued, I'd be the first to rally against their buybacks. But they're not. Thus, I'm a happy Fool, at least for today.

Going after Apple?
Some pundits and analysts are doubtlessly waiting with bated breath to see what Dell has to say today about Apple's (Nasdaq: AAPL  ) iPad and the potential threat that its tablet and those like it pose to Dell's boring old PC business.

Well, I couldn't care less. I've played with the iPad 2 in stores, as well as Research In Motion's (Nasdaq: RIMM  ) Playbook, and as far as I can tell there's nothing there that would make me less likely to buy a real computer. Besides, Dell has the Streak 7 for those looking for a 4G tablet on the cheap.

I think Apple and Dell will ultimately coexist peacefully in the tech world, with Dell sticking to enterprise and commoditization and Apple sticking to consumers and innovation. Dell will imitate successfully, and Apple will (maybe) continue to innovate successfully.

It's the circle of (tech) life!

Fool contributor Chris Baines is a value investor and owns shares of Dell. His stock picks and pans have outperformed 85% of the other members on Motley Fool CAPS. The Motley Fool owns shares of Apple and Cisco and has created a bull call spread position on Cisco. Motley Fool newsletter services have recommended buying shares of Cisco and Apple and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insight smakes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (5) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 30, 2011, at 5:39 PM, jhf678 wrote:

    Cisco to rebound with the new tablet.

  • Report this Comment On June 30, 2011, at 5:44 PM, millertimetexas wrote:

    I understand how buy backs are great but if stock is given out to employees in abundance then is not the benefit of the buyback not favoring shareholders. Dell did great the last few quarterly and management got hugh bonus and more stock. What did investors get? a buyback so we can give more stock to employees? At some point returns must be given to investors. Either get that stock price up or show me the money!

  • Report this Comment On July 02, 2011, at 3:45 PM, einzling44 wrote:

    Millertimetexas is right. Stock options are the biggest drag on numerous stocks such as DELL and CSCO.

  • Report this Comment On July 06, 2011, at 10:03 AM, financeguy85 wrote:

    Chris you still aren't getting it. Buying back stock doesn't help you at all if it is more than offset by option awards! You're delighted that Dell bought back 14 percent of its shares from 2007 to 2010. Do you realize the shares were trading north of $20 in 2007? How have all those wonderful buybacks done for shareholders? One day you'll get it. Not today apparently.

  • Report this Comment On July 06, 2011, at 10:15 AM, INEAUX wrote:

    "...[A]s far as I can tell there's nothing there that would make me less likely to buy a real computer."

    May I point out that: a) the iPad is a real computer and b) that reluctance to change is one of the reasons good companies go bad?

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