Dell stock is selling at about $13/share and they have $7/share of cash sitting around doing nothing. What needs to happen for them to pay a dividend? Why do they think they get to keep my money and do nothing with it? It’s been like 15 years since they could call themselves a growth company.
dead money. just like microsoft. It’s funny bec msft keeps posting great quarters, but the stock never goes anywhere because the sexy parts like wireless and search are sluggish.
JDV…get on the board and make the changes happen. i’m sure some analysts already asked them this question so just skim through their conference calls to find out their excuse.
These companies need to understand that this is the shareholders’ cash and not theirs to go out and do dumb things with. I used to blindly look at these cash balances as an automatic reduction is price (ex. you would be buying Dell at $6 dollars per share when you subtract the cash) but that approach is pretty dangerous without analyzing management and their track record of distributing cash. For example, there is a small company called Rimage (RIMG) that was trading around $13 at the end of September and they had $12 of cash per share so you thought you were buying the business for $1 per share. Total cash on their balance sheet was $115 million. Their primary business is making machines for CD duplication so it is going to be a buggy whip one of these days, but it is still profitable. What does management do with that cash? They go out and spend $39 million (along with 1 million newly issued shares of their stock) on a company that generated only $10 million of revenue last year and appears to be break-even at best. Just like that, $4 of cash per share is gone leaving $8 per share and then you have the 10% dilution from the new 1 million shares. On top of this, they announce the deal is closing in 24 hours and there is no shareholder vote. If you were going to sell 35% of your family’s portfolio to invest in a startup, would you ask your family before making this bet? I guess management at RIMG didn’t think they needed to. Be very careful treating the cash on a company’s balance sheet as yours unless you are confident they won’t spend it away.
subtracting cash is a big mistake many apply…this is why EV is a poor measure in my opinion. you also have to look at the dynamics of the industry. Dell is in a hyper competitive low margin business with their barriers eroded by cheap asian substitutes which makes it more than likely they will go for acquisitions in attempt to protect their share. Dell and HP are selling for cheap, but their future looks cheaper.
Frank, to your point it’s pretty generous to not “charge” management for the cash they are sitting on. When you deposit a bunch of cash into your bank account the bank does not reduce your mortgage payment just because you have cash sitting there. Shareholders need to be more demanding of these companies and not give them a free pass on the cash.
It sounds almost like a value play with the $7 of cash for a $13 stock. However, a value investor would have avoided it if it didn’t have a track record of paying dividends, so a bit of an enigma. Did you invest in it when it was a growth stock for it’s growth properties? Maybe you should just sell it and move on to another new growth stock. There should be no expectation for dividends to be paid given that they haven’t done it before. They might not use the cash wisely either as noted above.
To add to my point, paying regular dividends keep management honest - not like they can miss them without being punished by the market - you can’t fudge the numbers when you have to pay cash.
With possible banking system freezes on the way, don’t you think it’s sensible for company managements to have a large cash stores lying about so that they can purchase inventories and make payrolls if banks suddenly go belly up and stop lending? What has to happen for companies to reduce cash on their balance sheets is the banking system needs to become sounder and credit easily flowing.
Directors fear declaring dividends could dent its stock price and further delaying them from exercising their stock options. This is why behavioral finance is so dangerous and unpredictable. Whether this exist or not, it is quite arbitrary. From what the current P/E reflects, the market does not consider it a growth stock anymore unless the management can make some miracles.
Dell is not a growth stock. Its definitely more mature than the likes of established blue chips like coke, nike, and even IBM. certain companies won’t pay dividends and they have fared extremely well. dividends is just one variable albeit a very important one, but is normally not the deciding factor.
It’s better to sit on that cash and do absolutely nothing with it than to buy random companies for 10B (cough cough HP). I don’t think Dell is that great of a company for other more fundamental reasons, but I don’t think holding a lot of cash is a knock against them.
A lot of tech companies are hoarding cash right now. Not just Dell.
Surprised nobody mentioned this, but a lot of cash is sitting there on a consolidated basis due to cash being located in foreign subsidiaries which if repatriated would be taxed at roughly 35% (around there i suppose). Check deferred tax liabilities and net that against the cash to get a better picture. That chick on BNN today looks hot tday and i noticed no rings!
Yes the cash balances are very high. Does anyone know whether borrowings have increased commensurately? Perhaps, companies are borrowing now because they are able to in anticipation of a possible freeze in the financial markets . Ergo, financial positions may not be as great as being touted. @FrankArabia, there is a lot of cash sitting outside the US. There were rumours of that cash being given a tax holiday. On a lighter note. Who do you think wins. Amanda “big t…” Lang or Maria “pouting lips” Bartiromo?
Borrowings have no increased at the same pace as cash hoarding for A+ firms. Ppl are relunctant to spend due to uncertainty. Lets throw Becky Quick in there. she has an awesome pair of legs too. What about Betty Liu? asian reporters turn me on but only reporters. The key differentiator here is that Amanda is very smart but the oldest of them all problably. Also, she doesn’t show her legs off nearly enough. You would consider Amanda to have Big Ts? lets all sit and think for a minute on this question.
Ok. So borrowings may not have increased commensurately. Agree that people are not spending due to uncertainty. In that case, MSM and pundits touting B/s to be in the best shape ever is a misrepresentation, would’nt you agree? Now for the more important question. Where I come from the avg size is about a 32B. So on a relative basis, I think Amanda has Big T’s . Becky Quick, nah, does’nt do anything for me. Her nose and tiny lips turn me off. Totally with you on the Asian reporters. As an aside, Linda Liu (actress) now that is a hot babe!!
Amanda Lang is unattractive, Becky Quick is ordinary. *runs away*
You must be scoring with a bunch of hot classy babes. you gotta watch Amanda live to see her beauty. I can’t decide…too tough a decision.
There is a good article in Barron’s this weekend about the disclosure of cash and the costs of repatriation. http://www.emailthis.clickability.com/et/emailThis?clickMap=viewThis&etMailToID=1301478275