A Thumbs Down for the Hewlett-Packard Split? (HPQ)

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The Hewlett-Packard Company (NYSE:HPQ) remains on track to split in two this fall, but the long, slow rebound in HPQ stock looks like it ran out of gas, and will take more than a new dividend hike to get HPQ moving again.

hpq stock hewlett packard HPQ said Thursday it’s raising its quarterly dividend by 10% to 17.6 cents per share. The new dividend will be payable April 1 to shareholders of record as of the close of trading March 11. At Wednesday’s closing share price, that would lift the dividend yield on HPQ to 2.13% from 1.94%

That’s not a bad bump. No one is going to mistake HPQ for an equity income machine, but that’s a pretty good payout for a tech stock. Indeed, only about two dozen tech stocks in the S&P 500 sport yields of at least 2%.

Besides, the dividend hike is still peanuts compared to HPQ’s share repurchase program. (Most shareholders prefer buybacks to dividends because dividends get taxed twice.) In the trailing 12 months, HPQ disbursed $1.2 billion in dividends and spent $3.74 billion on share buybacks, according to data from S&P Capital IQ.

And, hey, it’s not like HPQ is alone in shelling out higher dividends and buying back stock. This sort of financial engineering is at an all-time high.

Too bad that, in HPQ’s case, it appears those moves have stopped helping HPQ stock. Since bottoming out in late 2012, HPQ grew 250% over the next two years. By the end of last year, HPQ went for about $41 per share.

HPQ: Two for the Price of One

The company’s plan to cleave itself in two drove upside, as did the dividends, share repurchases and cost cuts. The market loves the latter in particular, so it should be thrilled that HPQ remains on track to axe 58,000 jobs by the end of 2015.

And yet, the shares are going nowhere but down this year. HPQ is off more than 18% year to date, closing in on $30 per share. At its annual meeting Wednesday, HPQ affirmed that the plan to split into two companies by about Nov. 1 is on track.

Shareholders will get parts of both companies — an enterprise software, services and hardware business and a consumer-facing PC and printer business — with the dividend contribution split between the two. If you want a piece of these companies come fall, you could become an HPQ shareholder before then. Or you could wait and pick just one post-split.

That makes the year-to-date selloff somewhat ominous for HPQ. Are investors saying they don’t want either of these companies — or won’t take one if they have to take the other?

The PC and printer business — to be called HP Inc. — is a low-margin, low-growth affair, so it’s easy to see why lots of investors wouldn’t be interested. The enterprise business — to be called HP Enterprise — operates in a fast-growing market, but then, competition there is intense. Perhaps investors are showing a lack of faith in HPQ Enterprise, too.

Whatever’s going on, it appears the market is having second thoughts about the HPQ split. HPQ doesn’t have much to recommend it these days. Perhaps one of the new companies will offer better prospects, but for that, the market will have to wait and see.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2015/03/hewlett-packard-hpq-stock-split-thumbs-down/.

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