While good dividend prospects include innovations in cloud computing and high growth in expanding markets such as Brazil, India, and China, bad prospects include product shortages due to the flooding in Thailand, and fierce competition from other major market players. The companies I chose for my research are Intel Corporation (INTC), Cisco Systems Inc. (CSCO), International Business Machines Corporation (IBM) and LM Ericsson Telephone Company (ERIC), global giants that are either dominating markets or erstwhile leaders looking to diversify and regain former glory.
Like clockwork, Intel announced on March 1 that it would pay a quarterly dividend of 21 cents per share on March 1. This is the same amount that the company paid out over the previous two quarters.
The Santa Clara, California-based chipmaker beat analysts' forecasts in fourth-quarter, 2011 performance, posting Q4 revenue of $13.9 billion, a rise of 21%.
Earnings were 64 cents per share, rising 14% from the previous year and ahead of predictions by 3 cents. The solid fourth-quarter results came about despite business being hit by a shortage of hard drives following severe flooding of supplier factories in Thailand.
Intel enjoyed a measure of relief on a legal scale on February 9 when the company announced that the New York Attorney General had agreed to terminate a lawsuit alleging violation of US and state antitrust laws, charges that were filed by the AG in November, 2009.
The agreement states that Intel neither admits to any violation nor accepts the complaints are true and the company is free to conduct business as usual. Intel will pay $6.5 million to cover some of the costs incurred by the AG in litigation.
I think that the dropped lawsuit reduces uncertainty for Intel and the company warrants a slightly higher earnings multiple on the news.
However, news has emerged from the Asian-based Digitimes that Intel's Ivy Bridge processors, due for launch this spring, has been delayed because vendors are struggling to unload their Sandy Bridge stocks amid weak global demand.
In addition, consumers are unlikely to start buying new laptops until after September, when Microsoft (MSFT) is reportedly scheduled to release Windows 8, decreasing demand for Intel chips in the meantime.
For the first quarter of 2012, Intel expects sales of $12.8 billion, down 0.3%. Based on these factors, along with the reality that the Thai factories are still recovering from flood trauma, I believe Intel's dividend payouts will remain flat for the rest of the year.
Network hardware giant Cisco announced on February 7 its first-ever rise in dividend payout, 8 cents per common share. This came one year after it started paying out cash dividends for the first time in its history, a run of four straight quarters of 6 cents a share.
The network equipment maker reported second-quarter earnings of $11.5 billion, a 10.6% rise year on year, surpassing analysts' average expectations of $11.23 billion. Net income was $2.2 billion, up from $1.5 billion the previous year.
In my opinion, cash figures look good. Cash and cash equivalents and investments were $46.7 billion at the end of the second quarter of fiscal 2012, which falls at the end of January, compared with $44.4 billion at the end of the first quarter of fiscal 2012, and compared with $44.6 billion at the end of fiscal 2011.
Business activities during the second quarter included its acquisition of privately held BNI Video, which supplies video products and provides content delivery network analytic capabilities.
I think that innovations such as Cisco Unified Computing System, CloudVerse, Videoscape and its Connected Grid portfolio has helped to establish, as well as promise, fresh revenue streams for the future.
Cisco built its business on routers and switches that drive the Internet but is making a push into cloud computing, with the company estimating that mobile cloud traffic will account for 71 per cent of mobile data traffic by 2016, compared to 45 per cent in 2011.
I believe that Cisco, having made history with its first dividend payout increase, will keep its dividend per share at 8 cents for the next quarter but, as it pursues its three-year plan to drive earnings faster than revenue, shareholders may be in for another dividend surprise in the fourth quarter.
IBM is one of the most dependable stocks on the market, with its share price rising more than 17% over the past year, closing at 192.25 on Wednesday. Last year, the company increased dividend payouts by 10 cents, from 65 cents to 75 cents.
In January, the Armonk, New York-based company announced diluted earnings of $4.62 per share for fourth-quarter 2011, an 11% increase from the same period in 2010. Fourth quarter income was $5.5 billion, compared with $5.3 billion in Q4 2010, representing a 4% increase.
The multi-faceted IT company with a global presence, considered a model corporate institution, has never cut dividends since it started cash payouts in 2000. And it has big plans for the future, hoping to generate earnings per share of at least $20 by 2015.
IBM's guidance for 2012 is ambitious, expecting $14.85 earnings per share by year's end, and I believe that key to its prospects is performance in growth markets, given the uncertainty surrounding Europe and the US recovery still in first gear. Revenue from BRIC countries - Brazil, Russia, India and China - increased 19% and these regions are expected to carry the world economy on its back, at least in the near future.
Given this scenario, and its earnings per share aspirations, I think IBM will seek to increase dividend payouts towards Q3 and Q4 of 2012.
LM Ericsson hasn't paid out dividends since May last year, and after reporting a 66% drop in profit in the fourth quarter of 2011 - a result of cautiousness among US consumers and joint venture failings - the prospects of a payout revival appear dim.
However, the company enjoyed a $1.1 billion windfall after Sony Corp. (SNE) acquired Ericsson's 50% stake in Sony Ericsson Mobile Communications AB. The mobile handset business is now a wholly owned subsidiary of Sony and the new company is called Sony Mobile Communications.
Ericsson, which has struggled to meet the challenges posed by iPhones and Android, plans to focus on the wireless market. I do not think, however, that Ericsson's board of directors will be reaching deeper into its newly bulging pockets for the sake of shareholders. In my opinion, a dividend is not a high priority for 2012. I think the board would like to see consolidation in Ericsson's newly adjusted business model. Specifically, I think the board will want to see at least two quarters of stable top line and bottom line growth. The dividend paid out by Ericsson on May 3, 2011 was 37 cents a share. You can consider that a one-time event.
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About the author:
I practice Judaism and my faith is very important to me. I visit family in Israel once a year, but I am educated and work in the United States where I hold an MBA and a bachelor’s in English. I am a patient man, enjoy wine but am not a connoisseur, and I listen more than I speak.