Special dividends: Big waste of cash for techDecember 4, 2012: 1:25 PM ET
The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, and Abbott Laboratories, La Monica does not own positions in any individual stocks.
Apple (AAPL) has more than $120 billion in cash. Microsoft (MSFT) is sitting on $66.6 billion. And Cisco Systems (CSCO) has $45 billion in "caysh." So will any of these firms join the latest craze that's sweeping the markets and announce a special one-time dividend before year's end?
Several retailers, consumer companies and casino firms have all done their best impersonation of Dana Carvey's old Church Lady character on Saturday Night Live. "Well ... isn't that dividend spe-cial!"
Costco (COST), Whole Foods (WFM), Jack Daniel's maker Brown-Forman (BFB) and Las Vegas Sands (LVS) are some of the more prominent examples. These companies are trying to reward shareholders (which often includes company executives) now in the event that Congress and the White House decide to close their eyes and step off the fiscal cliff.
But I think it would be foolish for big techs to part with some of their hard-earned cash. Sure, it's getting harder to justify why many of these companies are hoarding cash. But just about every major tech company is paying some form of dividend. Google is the notable exception.
Doesn't it make more sense for Apple, Microsoft and Cisco to just keep paying their regular dividend and increase it gradually over time? Doing that sends the signal that a company is confident it can keep growing and is worrying more about actual fundamentals as opposed to accounting.
Offering a one-time payout ... or moving regularly scheduled dividends from next year to this month, like Oracle (ORCL) plans to do ... just because tax rates might go up seems like a silly use of cash.
What if we avoid going over the fiscal cliff? Wouldn't the billions of dollars that some companies are doling out wind up being a waste? What's the point of demonstrating to shareholders that you have nothing better to do with your cash than panic about a possible tax hike? Do any of the special-dividend payers think they are making a political point by essentially giving all their investors the equivalent of a winning Powerball ticket for no reason other than fear?
Sure, most tech companies have an abundance of cash and very little debt, so they're not risking major damage to their balance sheets with a special dividend. Still, many techs are holding big chunks of cash overseas for tax reasons in the first place. So moving money back (or repatriating) just to get ahead of a dividend tax hike may not make much sense.
But the fact that some investors are wondering if tech companies should even consider special dividends to begin with just shows how real the fiscal cliff anxiety is and how risk-averse many investors have become. Shareholders seem eager to take whatever money they can right now, even though special dividends may be unnecessary.
It wasn't that long ago that dividends in general were thought to be an anathema for tech stocks. Any self-respecting growth investor felt that it was better for tech giants to keep investing in research and development, equipment, acquisitions and talent (i.e. hiring more people) than to issue quarterly dividend checks.
That argument still holds true for younger companies like Google (GOOG) and Facebook (FB) -- firms that haven't matured yet and don't pay dividends. Both of them could clearly afford to do so: Google has $45.7 billion, while Facebook has $10.5 billion. But investing for growth is more important.
Even though older and more established tech firms are paying regular dividends, they should not follow the crowd and issue one-time dividends.
A special dividend would do nothing more than satisfy the increasingly myopic (and infantile) whims of Wall Street. "Wah! Taxes might go up. Give me a pacifier and more of your cash now!"
If Apple, Microsoft and Cisco want to remain competitive with more nimble upstarts, they will want to use their cash wisely and invest it for the long-term instead of throwing it over the fiscal cliff.