Despite big companies holding unprecedented billions and billions of dollars on their balance sheets, it is shocking how many companies do not reward shareholders in the most classic sense by paying regular dividends.  Before the internet and tech bubble and the bubbles that have since followed, dividends were what attracted most investors throughout history.  A common saying is one-third of investment returns through time come from dividends.  If used to be that if a company did not pay a dividend it meant that it was losing money or that it had to use its cash to grow or to stay competitive for a while.

We have seen over and over how dividend hikes have been coming from America’s leading corporations in 2010 and the trend for dividend hikes has already begun in 2011.  We wanted to take a look at some of the large companies which have not paid out dividends and those of which either easily could pay a dividend or which need to pay a dividend to shareholders.  Of these, we screened out Amgen Inc. (NASDAQ: AMGN), Berkshire Hathaway Inc. (NYSE: BRK-A), Dell Inc. (NASDAQ: DELL), eBay Inc. (NASDAQ: EBAY), EMC Corporation (NYS: EMC), and Kohl’s Corp. (NYSE: KSS).  We have also discussed Cisco Systems, Inc. (NASDAQ: CSCO) and Apple Inc. (NASDAQ: AAPL) with the odds of what each could pay.

Amgen Inc. (NASDAQ: AMGN) may be closer than ever to becoming the first of big biotechnology players to finally pay a dividend.  Amgen is now the world’s largest independent biotech giant with a market cap of more than $53 billion.  With shares around $56.50, its market cap peak was actually close to $75 billion back in 2006.  At issue now is that Amgen has been dead money for three years and the growth there faces challenges ahead with simultaneous pressure on its cancer-generated anemia franchise dominance.

The company recently announced a $425 million cash acquisition that could reach $1 billion if milestones are fully hit.  At the most recent earnings report, it noted that operating cash flow for 2010 fell 8% to about $5.8 billion from $6.3 billion in 2009.  Its global cash and marketable securities were $17.4 billion and debt was $13.7 billion as of December 31, 2010.  Amgen has been retiring shares in buybacks.  What stood out in the most recent earnings conference call was the hint of a dividend consideration.  The official line from the company’s investor site is “Amgen does not pay a dividend on stock, and does not foresee doing so in the immediate future.”

Growth is elusive here, or at least very challenging.  We have said over and over that Amgen has evolved past a biotech growth stock into a stodgy Big Pharma stock.  The problem is that Amgen does not pay a penny to shareholders via a dividend.  It has ample cash and the calls for a dividend are at least two years old now.  It seems likely that Amgen will have to reconsider a dividend policy during 2011 if it wants to finally start rewarding shareholders.  That being said, a 1% to 2% yield is probably the most investors should expect.

Berkshire Hathaway Inc. (NYSE: BRK-A) (NYSE: BRK-B) was at one point at risk of being considered a mutual fund rather than an operating company.  That is no longer the case as the BNSF giant rail acquisition removed any of those old barriers.  The company does not pay a dividend and it has not paid a dividend.  This last weekend it was given the cover story in Barron’s for generating billions and billions in cash flows.  It is also soon likely to receive several billion dollars back from both Goldman Sachs and General Electric as those preferred shares get retired.

Warren Buffett has always preferred to make big market bets or to make large acquisitions rather than having to pay out a cash dividend to shareholders.  The interesting aspect here is that Warren Buffett may be a better money manager with that cash for growth and income opportunities than the bulk of his shareholders.  A recent look through his greatest investments of all-time should prove why that is the case.

The company has always indicated that it might consider a dividend down the road if merited.  Barron’s pulled a late 2011 or 2012 time frame out for a dividend, but that may have been a reach.  There are two things in the way by our take: another whale of an acquisition and Warren Buffett’s tenure.  Berkshire Hathaway is always looking for big acquisitions that can help transform its empire and that would chew up its cash.  The Buffett angle is a simple one: After he’s gone and after his ownership is decreased, the new King of the Berkshire Hathaway empire might want to declare a dividend to entice investors to buy the stock.  Berkshire Hathaway is probably the least likely of our 2011 dividend picks to be anything more than a “probably soon” scenario.

Dell Inc. (NASDAQ: DELL) really needs to catch up to modern days here in many different ways.  At issue is more than just the dividend.  Both IBM and H-P have moved away from depending upon the world of PCs into other products and other IT services.  They both have dividends as well.  Dell has been trying to do the same, but it is lagging in that move.  It has made acquisitions but none that are truly transforming such as the HP-EDS merger.  While it has moved into IT-services, smartphones, storage, and other aspects of technology spending, many still consider Dell just a PC company since none of its acquisition have been major transformations.

Dell was one of the great growth stories of the 1990’s as the Western World kept buying new PCs to get into the digital age and the internet, only to be followed by PC upgrade after upgrade.  Now we are in the world of smartphones and tablets, so we have even moved past the netbook craze of cheap computing.  The company has not paid a dividend, and chances are growing that Dell will have to enter the age of shareholder payouts.

With shares above $13.50, it is no secret to say that the investor community is looking elsewhere other than buying Dell.  The thought that Michael Dell might consider taking it private seems more like a thought of yesteryear rather than a reality.  Investors have grown more vocal even against the newer management team and it seems that declaring a dividend might be the best reward.  If the company does not declare a dividend, it really better consider a truly transformative acquisition for its $14+ billion cash and marketable securities balance.

eBay Inc. (NASDAQ: EBAY) is one of the last internet and technology companies from before the tech bubble that is both extremely profitable yet pays no annual payment to its shareholders.  What is interesting for investors today is that it still offers growth and still offers some value considering its near-monopoly for Joe Public to turn his spare belongings into cash in the equivalent of a nationwide garage sale with an auction format.

What makes eBay unique is that it almost seems to have never fully caught the respect it deserves.  If you want to sell stuff in your home online easily, the only remaining place outside of certain niche items and niche markets is Craigslist.  eBay has also recently begun selling debt and using a credit line back when it announced a $2 billion share buyback plan in October.

Share buybacks have seemed to do very little when it comes to technology and internet companies.  The price of a stock is the price of a stock regardless of what management thinks.  If eBay wants to draw in more new investors from the outside, the company really needs to adopt a dividend policy.  It has more than enough liquidity to pay a dividend of 1% to 2% and it can still select to repurchase shares from time to time if it sees large sell-offs. 

EMC Corporation (NYSE: EMC) has grown and grown, organically and inorganically. What is interesting is a near paradox in that the world of enterprise storage seems ever-growing, but there is some form of maturing happening here in the sector and consolidation has been the big game of late to protect market share against a rising tide of competitors.  EMC has also started reaching down to smaller businesses and even to the small business and retail level of late.

Throughout EMC’s history, it has never paid a cash dividend despite six different stock splits from the early 1990’s to 2000.  The company noted on its investor site, “While subject to periodic review, the current policy of EMC’s Board is to retain all earnings primarily to provide funds for the continued growth of the company.”  The company now has a market cap of about $51.5 billion and shares hit nearly a decade high just this week after passing the $25.00 mark.

EMC has to be considered as more than just EMC.  It holds roughly an 80% stake in virtualization leader VMware Inc. (NYSE: VMW).  If the company could command the full value of that today, EMC could add up to over $25 billion into its coffers on top of more than $10 billion in cash, short term and marketable securities.  The company is still expected to grow by double-digits in 2010 and 2011, but eventually shareholders are going to want more.  EMC can consider a partial spin-off of VMware shares to its holders or it can consider unloading some of its cash.  At some point, this dividend pressure should arise.

Kohl’s Corp. (NYSE: KSS) is one of the few large retailer destinations which does not pay a dividend.  This retailer has been public since the early 1990s.  While most consider retail a profit generation machine, retailers are very stingy by and large when it comes to paying out dividends.  We just assumed that Kohl’s was paying a dividend to shareholders.  It is not, and it has not.  Rivals like Macy’s, Nordstrom, J.C. Penney, and Dillard’s do have quarterly payouts in the form of dividends to their shareholders.  None are very impressive as margins are generally very thin.

Kohl’s says on its investor site: “We have never paid a dividend and have no current plans to pay a dividend on our Common Stock. The payment of future dividends, if any, will be determined by our Board of Directors in light of existing business conditions, including our earnings, financial condition and requirements, restrictions in financing agreements and other factors deemed relevant by our Board of Directors.”  What the company is trying to signal is that it will pay a dividend if it wants to and if its credit pacts will allow for the foreseeable future.

After taking a look at its peer department store competitors, Kohl’s either is better off or is at least very competitive when it comes to profit margins, return on equity, price to book value ratio, and on a debt to equity basis.  Where Kohl’s is not competitive is on the shareholder reward front with dividends.  Asking for more than a 1% yield is probably not realistic, but Kohl’s should consider joining its peers with shareholder payouts.

TWO TECH-TITANS…

These companies here have all been listed in alphabetic order, but there are two we want to discuss again.  Cisco Systems, Inc. (NASDAQ: CSCO) and Apple Inc. (NASDAQ: AAPL) are both dividend stories for 2011.

Cisco Systems, Inc. (NASDAQ: CSCO) is likely a shoe-in after we hear about the quarterly earnings report due in February.  John Chambers has already indicated that he would capitulate and declare a dividend and the indicated range was a yield of 1% to 2%.  To date, the company has used billions upon billions to make small acquisitions and to offset employee and acquisition stock option conversions and the dilution from those.  If you split the difference for close to 1.5% in yield as a starting point, it seems likely that a $0.06 per quarter dividend could be declared.

Apple Inc. (NASDAQ: AAPL) will not pay a dividend under Steve Jobs.  He has said that without pause so he can have flexibility and can look at “strategic” opportunities.  We wish Mr. Jobs all the luck in his latest health fight, but investors are getting another reality check that Apple will one day be without Steve Jobs.  That means new permanent management and a new style of how the company will present itself as an investment opportunity and growth engine.  If Tim Cook or another manager has to fill Mr. Jobs’ shoes as the permanent CEO, there is a real chance that Apple may decide to send a one-time dividend or declare a very healthy steady dividend to holders to easy the dust-settling process.  This is one of those if-then scenarios rather than a fact, but a realistic possibility nonetheless.  Apple is in the position that it could send $30.00 per share as a one-time dividend in the mail after the next quarter and it would likely not have any major impact at all on its ability to be highly flexible.

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JON C. OGG

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