Time for big techs to pay up!
Oracle announced its first-ever dividend, joining Microsoft, Intel and other veteran techs in the dividend club. Could Apple, Google and Cisco be far behind?
NEW YORK (CNNMoney.com) -- To preserve cash, several big banks, including some healthy ones, have been forced to slash their dividends.
But even in this brutal recession, there are some companies sitting on piles of money that they could return to their shareholders.
Take Oracle (ORCL, Fortune 500). The database software giant announced Wednesday that it was initiating its first ever dividend, a payout of 5 cents a share a quarter or 20 cents a share annually. The company also reported better-than-expected earnings for its latest quarter. Those two pieces of good news helped lift Oracle's stock 14% as of mid-afternoon trading Thursday.
Based on Wednesday's closing price of $15.83, Oracle's dividend will yield 1.3%, not bad for a starter dividend. (The dividend yield is calculated by dividing the annual dividend by the stock price.)
But what's really interesting about Oracle's decision to start paying a dividend is that tech companies have typically been reluctant to issue them.
Many techs have argued that a better way to reward shareholders is through stock buybacks, which reduce the number of shares outstanding and therefore boost earnings per share.
In addition, tech giants have argued that paying a dividend is a sign that they don't have anything more productive to do with their cash, such as spend it on capital expenditures or research and development.
Now that Oracle has decided to pay a dividend, it may be harder for other "mature" tech companies with strong balance sheets to make those arguments. After all, Oracle isn't alone. It joins other tech blue chips, such as Intel, Microsoft, Hewlett-Packard and IBM.
With that in mind, I decided to take a look at some other big tech companies to see whether they can afford to pay a dividend.
Let's start with Google (GOOG, Fortune 500). The search engine leader's stock closed at about $333 a share Wednesday. So if Google wanted to have a dividend that yielded around 1%, it would need to pay investors $3.33 a share annually, or a little more than 83 cents per quarter.
Google has about 317 million shares outstanding. So the cost would be a little more than $1 billion. That is a big chunk of change. But Google could easily manage it considering that it ended last year with nearly $16 billion in cash. Plus, Google generated free cash flow of $1.75 billion in just the fourth quarter alone.
Several other notable tech companies also would have no problem paying a dividend that yields 1%.
A payout yielding 1% would cost Dell only $187 million or so, a small dent in Dell's cash hoard of about $9 billion. Yahoo would have to cough up about the same amount and it has about $2.3 billion in cash. Plus, despite its challenges, Yahoo did generate $219 million in free cash flow during the fourth quarter.
So all of these companies appear to have the financial flexibility to pay a small dividend and still have plenty of cash left to use for investing in growth opportunities such as acquisitions and R&D.
David Frink, a spokesman for Dell, said Dell has considered paying dividends but that the company has no current plans to do so. Instead, he said Dell would prefer to use cash to repurchase stock.
Kim Rubey, a spokeswoman for Yahoo would not comment specifically about whether the company was considering a dividend. But she said Yahoo is still looking to use cash to invest in acquisitions and other growth opportunities.
Spokespeople for Apple, Cisco and Google were not immediately available for comment.
But based on how well Wall Street greeted Oracle's dividend news, maybe these tech giants should consider joining the dividend club as well.
Shameless plug alert: Before I started writing The Buzz, I covered the media business for several years at CNNMoney.com. Some of this reporting is the basis of a book I've written about News Corp. CEO Rupert Murdoch called Inside Rupert's Brain, which was published on March 19 by Portfolio, an imprint of Penguin Group (USA).