Dell, Oracle may issue dividends
By Peter J. Brennan
Bloomberg News Service
ROUND ROCK, Texas — Dell Computer Corp., the world's second-largest personal-computer maker, and Oracle Corp., the third-largest software maker, may issue dividends after reviewing the federal tax bill that President Bush is expected to sign.
"We will study the law and we might change" to begin issuing dividends, Dell spokesman Mike Maher said. "If and when the double taxation is eliminated, at least to some degree, we will consider that in our decision."
Dell has been considering the issue for the past three quarters and Oracle's been looking at it since January. Oracle will consider issuing a dividend after the bill is signed, spokeswoman Jennifer Glass said.
Congress passed a plan to cut federal capital gains and dividend tax rates to 15 percent and 5 percent, depending on a person's income. The plan would begin this year and end by 2009. Technology companies have argued in the past that buying back shares or investing in their companies is a better use of cash.
"These cash hoards have been building up over the years, so investors are going to ask for some of that back, especially with the decrease in the tax rate," said Brett Berry, a fund manager at Bailard, Biehl & Kaiser, which oversees $1.2 billion in assets.
Plenty of cash
Dell had $10.3 billion in cash and investments at the end of the first quarter, a company record, as it generated $812 million in cash from operations. Dell has said it pays no dividends because corporate profits also are taxed, so issuing dividends would result in double taxation.
Oracle had $6.26 billion in cash and investments as of the end of February.
Now is when companies with large cash reserves will have to make a decision on dividends, said Sunil Reddy, who helps manage investments at Fifth Third Bank, which owns shares of Oracle, Dell and Cisco Systems Inc.
"The decision that companies are facing is, 'are we better off by giving some of this excess cash back to the shareholders, or do we re-invest in projects where the company can grow?"' Reddy said.
Shares of Round Rock, Texas-based Dell dropped 40 cents to $29.49 Friday on the Nasdaq Stock Market. Oracle shares dropped 20 cents to $12.10.
Dell's debt low
Dell invests less in research and development than rivals, spending $455 million in the year ended Jan. 31, compared with annual spending of about $4 billion at larger rival Hewlett-Packard Co., the world's biggest PC maker as ranked by units shipped in 2002.
Dell has $506 million in long-term debt, a relatively low amount compared with Hewlett-Packard, which does pay dividends and has $6.73 billion in long-term debt. International Business Machines Corp. and Intel Corp. are two large technology companies that also pay dividends.
Microsoft Corp., the world's largest software maker, in January announced it will pay an annual dividend of 8 cents a share.
Microsoft has more than $46 billion in cash and short-term investments.
Apple Computer Inc., which hasn't paid a dividend since 1995, has dismissed suggestions that it use some of its $4.5 billion in cash and securities to make a payment to shareholders, saying constant investment in new software, PCs and products such as its music stores is the best way to bolster the company's growth in a market that's dominated by Microsoft-run PCs.
Cisco Systems' board will continue to evaluate a possible dividend, based on the company's need for capital and the most effective way to enhance shareholder value, spokeswoman Melanie Bragg said. Cisco has $20.3 billion in cash and investments.
Oracle, which makes database programs, ranks third in software sales after Microsoft and IBM.
