by Jeff Reeves | February 17, 2012 7:55 am
Here’s the good news, dividend investors: Dividend payouts are on the rise, and the total dollar amount dished out by S&P 500 companies could reach a record high in 2012.
Here’s the bad news: Payout ratios — that is, the percentage of profits that are shared with shareholders via dividends — are actually at record lows.
In short, while publicly traded stocks are raking in more cash than ever, they actually are sharing less of that largess with their shareholders.
We all know the biggest offender. I’m talking about you, Apple (NASDAQ:AAPL). $30 billion in cash and $67 billion in short-term investments? Not a penny paid in dividends? And if you believe reports, a zero percent chance of a dividend being instated this year?
But it’s not just the Cupertino, Calif., tech giant dragging its feet. This is a problem in every corner of Wall Street. Payout ratios currently are sitting at around 27% — and historically, payout ratios average more than 50%. That’s not fair to investors, and it needs to change.
Here are seven cheapskate stocks that I think owe investors more in dividend payments:
Microsoft (NASDAQ:MSFT) might have a dividend, but it’s just as bad as Apple in many respects. The software giant has stubbornly kept its payout ratio low. Microsoft thought it would make a splash with its biggest dividend increase ever in 2011 that hiked payouts from 64 cents annually to 80 cents — a 25% boost. Unfortunately, shareholders still are getting shafted even after that substantial increase.
Microsoft has projected earnings per share in fiscal 2012 of $2.73. That means Microsoft is painfully average among S&P cheapskates, with a 29% payout ratio. Some Apple fans can give the company a pass under the (mostly false) pretense that it still is a high-growth tech stock and needs its war chest to invest in itself. But Microsoft is painfully mature, and its dividend should reflect that.
Adding insult to injury is the fact that the company has spent more than $80 billion on stock buybacks in the last decade — while shares have stayed flat. Here’s hoping MSFT starts just giving that cash back to shareholders going forward instead.
The mother of all oil stocks, Exxon Mobil (NYSE:XOM) has one of the most disappointing headline yields in big oil — a measly 2.2% right now. Royal Dutch Shell (NYSE:RDS.A, RDS.B) is yielding 4.6% on its dividend. Brazil’s Petrobras (NYSE:PBR) is almost 4.3%. Chevron (NYSE:CVX) is “only” 3.1%, which might not be as high as the others, but at least puts this domestic oil player in the list of top 10 Dow dividend stocks.
Exxon pays $1.88 in dividends annually, boosted its payout a paltry 7% last year and has a rock-bottom payout ratio of just 22% based on projected earnings of $8.55 for fiscal 2012. And like Apple, it also shares the unfortunate distinction of posting some of the biggest corporate profits in U.S. history — with its fiscal 2011 total of $41 billion second only to its previous record of more than $45 billion set in 2008.
Yes, oil prices are volatile — but forgive me if I don’t have much sympathy after those exorbitant earnings and a payout ratio below the already miserly S&P average.
Hewlett-Packard (NYSE:HPQ) is the poster child for mismanagement, and one of the clearest examples of everything that is wrong with corporate America. It burned $1.2 billion on Palm in 2010, just part of $16 billion burned across four years of ill-advised buyouts. It has a revolving door in the corner office, and is now hoping against hope that Meg Whitman can right the ship. Consumers pan its quality, investors are frustrated by relatively stagnant earnings and Wall Street is wondering what the long-term plan is.
HPQ has plenty of excuses to stay conservative on its dividend, but consider this: At 48 cents a year and based on fiscal 2012 EPS forecasts of $4.02, Hewlett-Packard pays out less than 12% of its profits to shareholders. No wonder those folks owning the stock are furious. A mismanaged company with vague plans for growth is bad enough — but one that pinches pennies on dividends while wasting money on pointless mergers is even more galling.
Intel (NASDAQ:INTC) has been steadily increasing its dividend since its first payment in 1992, including a 16% hike in its payout last year. INTC currently yields about 3.2%. That’s fairly attractive — and makes it one of the top 10 Dow dividend stocks. But it’s paying just 84 cents per share annually and projected to rake in $2.53 in earnings per share for fiscal 2012 — meaning its payout ratio is only 33%.
Some might argue that Intel faces threats like the rise of tablets and decline of PCs, but that’s just posturing to stay stingy. Intel’s profits have more than tripled since 2009 — so even if current threats slow momentum, there’s a lot of past success that hasn’t been shared with stockholders.
If you think Exxon is cheap, take a look at Ford (NYSE:F). The automaker just reinstated its first dividend since 2006 — which is a good sign. Unfortunately, at a measly 20 cents per year, it is only slightly better than a 10% payout ratio based on projected earnings of $1.87 in fiscal 2012. The headline yield of 1.5% also is very disappointing.
The caution about jumping back into the dividend game is understandable, since investors never would stomach a reduction in payouts after six years of getting stiffed. But come on — a 10% payout ratio? Even if you double the dividend, you’re still below the S&P average. Either corporate leaders have almost zero confidence in Ford’s future, or they’re just being greedy.
Yes, JPMorgan Chase (NYSE:JPM) and the rest of the banking industry remain in dire straits after the mortgage meltdown. Yes, new regulations and capital requirements will certainly impact the bottom line. And yes, after the TARP debacle and the Fed-approved dividend increases — and the equally interesting dividend refusal for Bank of America (NYSE:BAC) — investors shouldn’t expect much stability in the balance sheet of financials.
However, JPMorgan CEO Jamie Dimon loves to crow about the stability of his company. It now is the largest bank by assets, thanks to the fire-sale purchase of Washington Mutual and other deals. Revenue is above 2008 levels — and 2012 profits are forecast to be five times the earnings tallied in fiscal 2008. With a projection of $4.46 in earnings per share, the current annual dividend of $1 is a measly 22%. I give Dimon credit for getting regulators to sign off on a 400% dividend hike at the beginning of last year. But that’s still not enough, and I hope JPM has another dividend increase cooking.
Dividend investors don’t typically look to retail for big yield. And as such, they might think Wal-Mart (NYSE:WMT) is doing right by shareholders with its headline yield of 2.3%. But the $1.46 in annual dividends is just 29% of projected 2012 earnings, which should top $4.54 a share.
Yes, Wal-Mart has had its troubles — horrible same-store sales stringing back many quarters and the rise of discounters like Dollar General (NYSE:DG) that are eating its lunch. But with more than $400 billion in annual revenue and an entrenched position in the retail industry that allows it to push around vendors for small margins, it’s not like profits are at risk of dropping dramatically.
Even if WMT just treads water, the very least it can do is increase its dividend to deliver a bigger share of profits to shareholders.
Jeff Reeves is the editor of InvestorPlace.com. Write him at firstname.lastname@example.org, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. As of this writing, he did not own a position in any of the aforementioned stocks.
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