Dell Inc. (DELL:US) rose in late trading after the third-largest personal-computer maker said it will pay a dividend for the first time, following peers such as Apple Inc. and Microsoft Corp. (MSFT:US) in returning more cash to shareholders.
The quarterly payout of 8 cents a share will begin in the period that ends in October, the Round Rock, Texas-based company said in a statement. The dividend’s yield would be 2.7 percent, based on the stock’s closing price yesterday. Shares climbed as much as 6.6 percent in extended trading after the announcement.
Dell is awarding a dividend as an incentive to stockholders after shares fell 23 percent in the past year. With revenue estimated by analysts to drop 3 percent this year, Chief Executive Officer Michael Dell has been acquiring makers of data storage, networking gear and business software to diversify beyond PCs and revive growth. At the company’s annual meeting last July, a shareholder proposal for a dividend was defeated.
“It’s been something investors have asked about for years now,” said Jayson Noland, an analyst at Robert W. Baird & Co. in San Francisco. “The reaction will be positive.”
Dell may generate $2.25 a share in free cash flow this year, or about 19 percent of its market value, according to Noland, who has a neutral rating on the shares.
“You don’t typically see companies with free cash flow yields that high, and when you do, investors are saying, ‘We don’t think we’re ever going to see this free cash,’ ” he said.
The company ended the fiscal first quarter with $17.2 billion in cash and investments, Chief Financial Officer Brian Gladden said on a conference call last month.
Dell follows other large technology companies in starting or increasing dividends after amassing cash previously earmarked for research, development and acquisitions.
Apple, the world’s largest company by market value, in March said it would pay its first dividend in 17 years, heeding investors who urged it to return part of its cash hoard. Microsoft, the biggest software maker, in 2003 acceded to shareholders’ demands for a cash return by paying its first dividend. It raised the payout (MSFT:US) by 25 percent last year.
“With the cash flows we’ve been generating, up 5 percent last year, we’re very happy to initiate this dividend and return more capital to shareholders,” Dell said yesterday in an interview on CNBC. He and CFO Gladden will update analysts on the company’s outlook a meeting today in Austin, Texas.
Through the dividend and stock buybacks, Dell said it plans to return 20 percent to 35 percent of free cash flow to investors, up from a prior projection of 10 percent to 30 percent. Over the past four quarters, Dell has generated $4.9 billion in cash flow from operations, the company said.
The board has periodically considered paying a dividend, and the company plans to continue its share repurchase program, said David Frink, a Dell spokesman.
As smartphones and tablets siphon sales from PC makers, Dell’s sales growth has slowed, with revenue rising just 1 percent in fiscal 2012. The company lost share in the global PC market in the first three months of the year, and it now trails Hewlett-Packard Co. (HPQ:US) and Lenovo Group Ltd. (992), according to market researcher Gartner Inc. Dell is expanding in enterprise technology to offer corporations a broader lineup of products and services to run technology operations.
Hewlett-Packard’s dividend yield (DELL:US) is 2.5 percent, while Lenovo’s is 2 percent, according to data compiled by Bloomberg.
In February, Dell projected fiscal 2013 earnings excluding some items of at least $2.13 a share. The company in May said revenue for the quarter ending in July would be $14.7 billion to $15 billion.
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