I Want My Dividends (Increased)

by Marc Bastow | August 3, 2012 12:10 pm

With the market throwing up all over itself thanks to “news” events like the Fed balking on QE3 and a virtual economic Archbishop Ferdinand moment coming out of Europe, investors are yearning for any sign of market stability.

Which, of course, they can’t seem to find.

What investors are finding is a little bit of help from companies that are knocking earnings out of the park, generating rivers of free cash flow and increasing their dividends[1].

Which makes it frustrating when you look at other companies that are doing the same thing — but definitely could afford to make it a lot more.

Before I call out some names that could use a wake-up call, though, let’s look at an example of the behavior we’re trying to encourage.

Apple (NASDAQ:AAPL[2]) hadn’t paid a dividend since Steve Jobs was back in his Cupertino, Calif., garage. Of course, no one complains about income obligations when you’re making them rich through dizzying stock gains.

But Tim Cook took over, and the honchos at Apple likely had the realization that while there’s still growth ahead, the business was at least starting to mature. Since the company sat on virtually uncountable piles of cash and was generating roughly $23 billion in free cash flow, AAPL declared a $2.65 quarterly dividend[3] that got people’s attention. Sure, that’s less than a 2% yield on today’s prices, but it’s a start — and Apple has the pockets to improve it down the road.

Now, it’s time to look at a few other companies sitting on free cash flow — based on most recent fiscal year figures — instead of really upping the ante for shareholders. (And please don’t tell me stock buybacks reward those shareholders — straight cash always is better.)

Name Ticker Free Cash Flow (mm) Dividends Paid (mm) annual
Available cash (mm) Cash/
Oracle ORCL $12,249 $1,368 $0.24 0.78% $10,881 $2.66
Microsoft MSFT $17,640 $6,385 $0.80 2.68% $11,255 $1.35
Exxon Mobil XOM $31,734 $9,326 $2.28 2.6% $22,408 $4.80
Wal-Mart WMT $23,829 $5,048 $1.60 2.13% $18,781 $5.55

Looking at each one of these stocks, investors can see that excess cash flow could finance a lot more than the increases they’ve already doled out.

Oracle (NASDAQ:ORCL[4]) easily is the most miserly of the group. The company’s divided payout ratio is an anemic 12% — not just well below its fellow cash-hoarding giants, but about a third the current S&P 500 payout ratio of 30% and just a sliver of the historical average of 50%.

C’mon, Larry. We know you’re one of the wealthiest people on earth, but the rest of us could use a little scratch.

What makes the figure barely tolerable is a five-year stock price appreciation of more than 35%, but ORCL shares actually have hit a bit of a rut, down about 11% since peaking in early 2011. With well more than $2 per share in extra cash, there’s no reason Oracle shouldn’t juice up its payout — which, at roughly 6 cents quarterly, yields less than 1%.

Then there’s Exxon Mobil (NYSE:XOM[5]), which admittedly has been more generous than Oracle. Exxon has been increasing its dividend for years, including a 20% boost this year to a 57-cent quarterly dividend (2.6% yield). Still, XOM has $4.80 per share to play with — even after pumping a ton of cash into R&D and capital expenditures — and its dividend payout ratio is an unsatisfactory 21%. Exxon loves its buybacks[6] — but shareholders annoyed with roughly flat returns since last April might appreciate a more tangible cash spend instead.

Microsoft (NASDAQ:MSFT[7]) is no skinflint, either. It yields roughly 2.7% on its 20-cent quarterly dividend, and has been steadily — but slowly — increasing dividends since it started paying them regularly in 2004. Its payout ratio actually is the best of this group, too, at nearly 40%.

So why call Microsoft out? Because MSFT shares have essentially been crap for a decade. After partying in 1999, shares began to decline in 2000 and mostly have been stuck in a $25-$30 range ever since, with a few wiggles here and there. Even after being dumped into the teens during the financial crisis, Microsoft jumped to the $30 range, then seemingly shifted into cruise control.

I am thrilled and cautiously optimistic about the potential of the Surface tablet[8], but Microsoft has $11 billion in excess cash to burn and a lot of shareholders to please. Hint: Don’t spend it on another aQuantive[9] — push up that payout instead.

Wal-Mart (NYSE:WMT[10]) is the largest employer in the country and an iconic name, synonymous with big-box retailing and discounting. I hate to keep beating up on steady dividend payers/increasers — WMT’s payout now is up to 40 cents per share quarterly (for a 2.1% yield) — but its payout ratio of 32% still is merely on par with the S&P 500, and well under the historical average.

WMT has more than $5.50 a share to play with, again, not including cash on hand. While investors treated to roughly 25% gains year-to-date aren’t exactly clamoring for it right now, a bump surely would be welcomed to get that yield closer to 3% than 2%.

Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing, he is long MSFT, JNJ, and MSFT.

  1. increasing their dividends: https://investorplace.com/hot-topics/companies-increasing-dividends/
  2. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  3. AAPL declared a $2.65 quarterly dividend: https://investorplace.com/2012/03/does-apple-dividend-signal-end-of-growth-aapl/
  4. ORCL: http://studio-5.financialcontent.com/investplace/quote?Symbol=ORCL
  5. XOM: http://studio-5.financialcontent.com/investplace/quote?Symbol=XOM
  6. Exxon loves its buybacks: https://investorplace.com/2012/03/stock-buybacks-repurchase-2009/
  7. MSFT: http://studio-5.financialcontent.com/investplace/quote?Symbol=MSFT
  8. Surface tablet: https://investorplace.com/2012/07/shouldnt-acquisitions-actually-be-worth-it-msft-aquantive/
  9. aQuantive: https://investorplace.com/2012/07/shouldnt-acquisitions-actually-be-worth-it-msft-aquantive/
  10. WMT: http://studio-5.financialcontent.com/investplace/quote?Symbol=WMT

Source URL: https://investorplace.com/2012/08/i-want-my-dividends-increased-aapl-msft-orcl-jnj-xom-wmt/
Short URL: http://invstplc.com/1fErToN