After nearly 20 years of hoarding capital, Microsoft decided to pay a $0.08 quarterly dividend in 2003. Why? Management finally concluded that it could share profits with shareholders while "maintaining our significant investment in research and development and satisfying our long-term capital requirements." In other words, Microsoft was generating so much cash that it could no longer deploy it as effectively as it once did.
The company followed that declaration with a one-time $3-per-share special dividend that was a boon for income investors. Moreover, Motley Fool Income Investor analyst Mathew Emmert declared Microsoft "one of the best opportunities for substantial dividend growth available in the market today," a company whose future is akin to Altria's past -- the best-performing stock since 1950.
It's all about the Benjamins
Microsoft resisted paying a dividend for years, citing the higher returns it could get reinvesting cash in its own businesses. But it followed that $0.08 declaration with a raise to $0.16 and then with another increase to today's $0.32 payout. That's 300% dividend growth with future gains on the horizon -- a trend every investor should be scouring the marketplace to find.
The year before the Bill Gates-led software behemoth declared its first dividend, the company reported more than $28 billion in revenue, $38 billion in cash on hand, no debt, and free cash flow (FCF) of $1.24 per share. The next year, it reported more than $32 billion in revenue, nearly $50 billion in cash, and FCF of $1.29 per share -- roughly one-third of revenue. A modest quarterly dividend wasn't going to cramp Microsoft's style.
Find the cash machines
So who should be paying a dividend today that isn't? These guys:
|
Company |
Market Cap |
Revenue |
FCF Per Share |
Cash/Debt Ratio |
|---|---|---|---|---|
|
Activision |
$3,700 |
$1,405 |
$0.95 |
$314/$0 |
|
Bed Bath & Beyond |
$13,650 |
$5,291 |
$1.45 |
$877/$93 |
|
Boston
Scientific |
$23,600 |
$6,314 |
$1.96 |
$883/$2,056 |
|
Coach |
$13,200 |
$1,630 |
$1.17 |
$496$/25 |
|
Dell |
$99,940 |
$51,051 |
$1.94 |
$9,841/$504 |
|
Starbucks |
$19,660 |
$5,880 |
$0.79 |
$701/$4 |
|
Timberland |
$2,360 |
$1,533 |
$2.25 |
$204/$0 |
Investors should be salivating at the prospect of all of these companies declaring a dividend -- Dell and Starbucks, in particular. These are cash-rich, cash-generating firms that could supercharge some portfolios by sharing profits they cannot dynamically reinvest.
Get paid to play
At Income Investor, Mathew surveys the market for companies that give investors the opportunity to realize both dividend and capital gains. After all, the market's performance has been powered by the performance of dividend payers. And by buying high-quality, dividend-paying companies at reasonable prices and reinvesting the dividends paid, you can crush the market -- the stated goal of each and every investor from Warren Buffett on down.
To view Mathew's more than four dozen favorite income stocks, enjoy a free 30-day trial of Income Investor. There's no obligation to subscribe, and a trial includes access to all back issues and previous picks, mid-month reports, current risk-adjusted values, and the Income Investor discussion boards, where Mathew posts regularly and where you'll find hordes of like-minded investors sharing wisdom, ideas, and analysis.
Someday the seven above may even join the select Income Investor ranks. Click here to learn more.
Tim Hanson owns none of the companies mentioned in this article. At the Fool, no writer is too cool for disclosure. and Tim's pretty darn cool.
