Tech giants should note Microsoft dividend raise
Not all companies in the sector are responding to the software maker's leadership in this area.
Dow component Microsoft (MSFT), the world's largest software maker, added to the dividend craze in the technology sector by announcing that it's boosting its quarterly by three cents, or 15%, to 23 cents a share. The news, announced Tuesday after the close of U.S. markets, is merely the latest in what has become a long string of positive dividend headlines from the Washington company.
Microsoft did not start paying a dividend until 2003. The first payout was eight cents a share per quarter. For the next several years, dividend growth was lackluster, but by 2007 the company was paying an annual dividend of 40 cents per share. That figure doubled by the start of this year -- and that was before Tuesday's announcement.
This is good news for Microsoft shareholders and it continues a spate of favorable dividend news this year from the technology space that has seen the sector become the biggest dividend payer in the U.S. (Microsoft owns and publishes Top Stocks, an MSN Money site.)
Tech, also the largest sector weight in the S&P 500, has room to grow dividends further and other companies should follow the lead of Microsoft, Intel (INTC) and others in increasing shareholder rewards.
Here are a few examples:
Oracle, the world's largest maker of enterprise software, pays a dividend. A piddly 24 cents per share per year, which means the shares currently yield 0.7%. Investors could get a trailing 12-month yield that is more than five times that on the less volatile iShares iBoxx $ Investment Grade Corporate Bond Fund (LQD).
Oracle's free cash war chest is expected to rise to $12 billion this year, Barron's reported in June. The company has 4.88 billion shares outstanding so even a doubling of its dividend would not strain Oracle's fortress-like balance sheet.
If Oracle is a dividend offender for having all that cash and forcing investors to rely on capital appreciation with a puny payout, then data storage provider EMC is a slap in the face of income investors. As in EMC pays no dividend at all despite having $5.65 billion in cash and short-term investments as of early August.
EMC does not like giving shareholders money, but it likes to spend money on M&A. The company has made four acquisitions in 2012, keeping with the firm's acquisitive history. Shareholders may be saying "What about me?" when it comes to EMC's cash hoard.
Google pays no dividend and one can only guess why the company does not. Maybe it is because it wants to make more acquisitions. Maybe it is because it does not want to lose its "growth stock" feel by paying a dividend, though that argument holds no validity now that Apple (AAPL) pays a dividend. Apple has proceeded to touch new all-time highs in recent weeks months AFTER its dividend announcement.
When Google reported its second-quarter earnings in April, it had $49.3 billion in cash. Some of that, an albeit small sum, is being squandered on the Google car that a microscopic percentage of the population can afford or would even want. None of that cash hoard is going to shareholders.
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