Dell to Initiate Quarterly Dividend of 8 Cents a Share
06/12/2012| 06:35pm US/Eastern
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--Dell plans to pay a quarterly dividend of 8 cents a share
--Dividend yield is 2.7%
--Move boosts Dell's stock in after-hours trading
(Adds more details throughout.)
By Shara Tibken and Ian Sherr
Dell Inc. (>> Dell Inc.) said it plans to pay a dividend beginning in its fiscal third quarter, becoming the latest technology company looking to boost shareholder value and attract a new group of investors.
The Round Rock, Texas, company said its first-ever dividend would begin at a rate of 8 cents share. That results in a yield of 2.7% and costs the company about $560 million a year.
Shares, down 23% over the past 12 months through Tuesday's close, climbed 2.5% to $12.27 after hours.
Analysts say the move could open Dell up to a new class of investor, while also potentially boosting its share price. Dell has also bought back stock at a rapid rate, reducing its share count by nearly 14% over the past four years. The company had 1.75 billion shares of common stock outstanding as of May 24.
Dell's move comes as the company has been attempting to remake its business model in the face of soft sales of personal computers. It has attempted to boost both revenue and profits by acquiring higher-margin businesses, including data storage, security and networking technologies. Since 2009, the company has acquired about a dozen companies, many of which over the past year.
Last month, Dell reported its fiscal first-quarter earnings slipped 33% as it reported lower revenue in its consumer, public and large-enterprise customer segments. The company, which at the time signaled more tough times ahead, blamed the weakness on an uncertain economy, increased competition and poor execution. Dell is hosting a meeting this week to discuss its strategy with analysts.
Many technology companies, particularly younger ones like Google Inc. (GOOG), resist the notion of dividends. But some mature technology companies--including Dell's biggest competitor, Hewlett-Packard Co. (HPQ)--have paid them for years.
Companies that have recently shifted their stances on the issue include consumer-electronics giant Apple Inc. (AAPL), which in March unveiled plans for its first-ever dividend, and Marvell Technology Group Inc. (MRVL), which makes chips for hard-disk drives and mobile devices, announced its first payout last month.
While Dell's dividend may be applauded by some investors, analysts questioned whether it was the best idea for a company with $5.8 billion in long-term debt and about $12.8 billion in cash and cash equivalents.
"This company is still in turnaround mode," said Shaw Wu, an analyst at Sterne Agee. He added that the company's fortunes still tend to ebb and flow with the PC market's growth, and that it has yet to fully realize the promise of its higher-margin acquisitions. "They're still too heavily into PCs and they aren't diversified enough."
Through the dividend and share repurchases, Dell said it will increase its target range for distribution of capital to shareholders to 20% to 35% of free cash flow, up from 10% to 30% of free cash flow.
--Nathalie Tadena contributed to this article
Write to Shara Tibken at shara.tibken@dowjones.com and Ian Sherr at ian.sherr@dowjones.com
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