Cisco’s dividend puts techs on top when it comes to paying dividends.
It’s well known that technology corporations are loaded with cash. The likes of Apple, Microsoft, Cisco and Oracle are legendary for sitting on ever-growing piles of the stuff. And up until recently most techs have been rather stingy when it comes to giving that cash back to shareholders. But lately the sector has become more charitable.
“Information Technology has become the largest dividend payer,” writes Howard Silverblatt, a senior index analyst at Standard & Poor’s, in his latest S&P Dividend Index report. The report comes on the heels of Cisco’s announcement that it would increase its dividend by 75 percent.
The recent dividend issuance rush may be the result of tech companies hesitant to do share buybacks – even with many stocks like Cisco near all-time lows. At a November 2011 NeuGroup Tech20 Peer Group meeting, members were told that share buybacks were an iffy proposition and that dividends were the way to go. And most members agreed, with most issuing dividends or leaning toward doing so. Several members said they were able to consistently offer dividends and still maintain the revenue ramping and margins of a growth company.
According to S&P currently 55 percent of IT companies pay a dividend, which represents 78 percent of their market value.
This isn’t to say that issuing dividends is the wisest move either and share buybacks may come back to the fore, particularly as, according to S&P’s Mr. Silverblatt new tax laws come into effect. “At this point, taxes are my main concern for dividends,” Mr. Silverblatt writes. “Under current legislation, taxes on dividends to individuals will almost triple in 2013, rising to 43.4 percent from 15 percent. From a planning perspective, this will force corporations to reexamine their return to shareholders policy, potentially pulling back on dividend increases and increasing share buybacks.”
But both dividends and share buybacks are frowned upon by some in the NeuGroup universe. One member of the Treasurers’ Group of Thirty-2 said that in his view dividend and share buy backs, “reflect the inability of management to find better uses of cash.” At the same time, this member said having the surplus at all increased the “likelihood of spending money poorly.”
Of course it could be that this treasurer doesn’t have a lot of cash to throw around. Also, in the current environment, where tech companies may be hesitant to acquire or plow new money into the business dim economic prospects, giving back to shareholders might make the most sense.