NEW YORK (CNN/Money) -
Microsoft's decision to shower shareholders with cash may pressure other companies with bucketfuls of dough and little or no dividend to follow Microsoft's lead, analysts said Wednesday.
But since nobody's got the kind of cash mountain Bill Gates was hoarding, it seems unlikely other firms will give shareholders a payday as significant as Microsoft's.
On Tuesday, the world's largest software company announced plans to give back some $75 billion to shareholders over four years by increasing dividends and buying back stock -- one of the biggest corporate payouts in U.S. history.
By Wednesday morning, some on Wall Street, including the Wall Street Journal, were turning to some other companies flush with cash and saying, "Why can't you be more like Microsoft?"
The newspaper singled out Cisco (CSCO: Research, Estimates) and Intel (INTC: Research, Estimates) for special criticism. Cisco pays no dividend and has some $20 billion in cash and investments -- far from the $56 billion in Microsoft's nest egg, but the biggest cash hoard among non-dividend-paying, non-financial firms.
Intel, which sits on about $18 billion in cash and investments, Wednesday said its plans to continue paying a quarterly dividend of 4 cents a share. That's a yield of about 0.7 percent, well below the average yield of 1.7 percent for companies in the S&P 500.
| * excludes financial, insurance and other capital-intensive firms | | Source: CNN Money |
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"Now that Microsoft has in a sense capitulated to shareholder enthusiasm for this kind of action, Intel's next, then after that is Cisco," said Paul Sagawa, analyst with Bernstein & Co. "I think it's difficult to justify a company carrying that much cash."
Intel spokesman Robert Manetta defended the company's handling of its cash, saying its regular dividend and stock buyback plan showed it was dedicated to giving money back to shareholders.
What's more, Manetta said, Intel needs cash to plow back into operations to keep the company competitive for its shareholders.
"It's important to have cutting-edge manufacturing ability, and to do that you have to build cutting-edge fabrication plants, and those cost between $2 and $3 billion each," Manetta said. "We do have a need for capital."
Cisco would not comment on the Microsoft decision.
"We believe our share repurchase program, combined with our ongoing strategic investments in our business and maintaining a strong cash balance, is in the best interest of our shareholders," said Cisco spokeswoman Terry Anderson. "Our board will continue to evaluate if and when and what amount of dividend will be paid."
Like Intel, Cisco, Dell (DELL: Research, Estimates), Oracle (ORCL: Research, Estimates), EMC (EMC: Research, Estimates) and other companies with $5 billion or more on hand but no dividend would seem to have similar reasons for hanging on to cash.
Dell, for example, could also claim a need for money to buy or build plants. Cisco talks often about expanding several of its businesses. Oracle is trying to buy PeopleSoft (PSFT: Research, Estimates).
If such spending plans make these companies more profitable in the future, then shareholders might be better off letting the firms hang on to their money.
"If you think about what dividend policy should be for any company, if the company has better uses for cash to give a higher rate of return than shareholders do, then the company should retain and invest that cash themselves," said Michael Cohen, director of research for Pacific American Securities.
Firms such as IBM (IBM: Research, Estimates), Qualcomm (QCOM: Research, Estimates) and Motorola (MOT: Research, Estimates), which have cash and pay small dividends like Intel, may have similar excuses, according to some analysts.
"I think Microsoft's situation was a little company-specific, in that it had so much cash on the balance sheet that it was almost obscene to investors," Cohen said.
Eventually, however, long-in-the-tooth tech firms such as Cisco, Oracle and Sun (SUNW: Research, Estimates) may reach a point at which growth opportunities are limited. That may make them more inclined to pay out dividends.
Even if Microsoft's action pushes some of these firms to start issuing dividends, it seems unlikely they'll turn into staid, old fogeys overnight.
"I would expect, over time, to see companies like Cisco and Dell begin to raise or institute a dividend, but I don't expect it to be significant, said Zack Shafran, manager of the Waddell & Reed Advisors Science & Technology fund, which owns stock in all those companies.
"Don't forget that Cisco's efforts (to build its business with big telecom) carriers, security and storage, while not nascent, are still quite small," Shafran added, "and they have a lot of growth opportunities in front of them as a result."
Waddell & Reed owns shares of the companies discussed. No analysts own shares of the companies discussed, and their firms have no relationship. However, Bernstein & Co. is owned by Alliance Capital, which likely owns shares of all.
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