Last week, computer giant Dell (Nasdaq:DELL) became the latest tech giant to pay a dividend with its ballooning cash hoard. Last week initiated its first ever dividend. The company announced that it will begin paying shareholders an 8 cent quarterly dividend. The annualized 32 cent dividend represents a yield of just under 3% based on the current share price of roughly $12.30.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

Giving Back

Earlier this year, tech darling Apple (Nasdaq:AAPL) announced that it was returning a small portion of its cash hoard to investors via a dividend. Apple, the world's most valuable company with a market cap of some $540 billion, was sitting on over $100 billion in cash prior to the announcement. Dell has nearly $14 billion in cash and is expected to generate over $2 per share in free cash flow in 2012. According to the company, shareholders can expect to receive around 30% back a year in the form of dividends and stock buybacks. Considering that founder and CEO Michael Dell is the company's largest shareholder, investors can take comfort that Dell will follow through with its goal. And because Dell shares today are priced so attractively, share buybacks should create significant value over the long run. In 2012, Dell's free cash flow generation is expected to equal nearly 20% of the company's current market value.

Tech giant Microsoft (Nasdaq:MSFT) really got the dividend wave started when it began with a $3 special dividend a few years back. Since then, Microsoft has not only issued a regular dividend but has increased that it over time and will likely continue to do so in the future. The writing seems to be on the wall for the bellwether tech stocks. Microsoft yields 2.7%, similar to Dell now. Intel (Nasdaq:INTC) leads the pack amongst blue chip tech names with a 3.1% yield. Cisco (Nasdaq:CSCO) follows with nearly a 2% yield, while the lone standout remains Google (Nasdaq:GOOG). With a market cap of roughly $189 billion and cash in excess of $40 billion, it may not be too long before Google shareholders start pressuring the company for some of that cash.

The Bottom Line

Big tech stocks are facing the reality that they no longer need nor have the opportunity to reinvest billions of dollars each year in growing their businesses. As a result, cash is piling up on the balance sheets of the biggest tech names with nowhere to go. Apple had over $100 per share in cash prior to the dividend announcement while Google has over $140 in cash per share. Perhaps in a few years, tech stocks will be known as some of the highest dividend payers in the market.

At the time of writing, Sham Gad did not own shares in any of the companies mentioned in this article.
Related Articles
  1. Stock Analysis

    Starbucks: Profiting One Cup at a Time (SBUX)

    Starbucks is everywhere. But is it a worthwhile business? Ask the shareholders who've made it one of the world's most successful companies.
  2. Stock Analysis

    How Medtronic Makes Money (MDT)

    Here's the story of an American medical device firm that covers almost every segment in medicine and recently moved to Ireland to pay less in taxes.
  3. Investing News

    Latest Labor Numbers: Good News for the Market?

    Some economic numbers are indicating that the labor market is outperforming the stock market. Should investors be bullish?
  4. Investing News

    Stocks with Big Dividend Yields: 'It's a Trap!'

    Should you seek high yielding-dividend stocks in the current investment environment?
  5. Investing News

    Should You Be Betting with Buffett Right Now?

    Following Warren Buffett's stock picks has historically been a good strategy. Is considering his biggest holdings in 2016 a good idea?
  6. Products and Investments

    Cash vs. Stocks: How to Decide Which is Best

    Is it better to keep your money in cash or is a down market a good time to buy stocks at a lower cost?
  7. Investing News

    Who Does Cheap Oil Benefit? See This Stock (DG)

    Cheap oil won't benefit most companies, but this retailer might buck that trend.
  8. Investing

    How to Ballast a Portfolio with Bonds

    If January and early February performance is any guide, there’s a new normal in financial markets today: Heightened volatility.
  9. Stock Analysis

    Performance Review: Emerging Markets Equities in 2015

    Find out why emerging markets struggled in 2015 and why a half-decade long trend of poor returns is proving optimistic growth investors wrong.
  10. Investing News

    Today's Sell-off: Are We in a Margin Liquidation?

    If we're in market liquidation, is it good news or bad news? That party depends on your timeframe.
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center