Technology-company dividends haven’t caused much heartburn for investors so far during the coronavirus pandemic. Energy, hotels and airlines have been among the hardest-hit industries in that department.
A recent Evercore ISI research note cautions, though, that some technology firms “need to be monitored.” The research note, dated Sunday, observes that tech firms that allocate more than 50% of their free cash flow to dividends should watched carefully, “particularly in the event that [free cash flow] is reduced by 20-30%.”
Free cash flow is usually calculated by subtracting capital expenditures from operating cash flow.
The Evercore ISI analysts point out that
International Business Machines
(ticker: IBM) used nearly half of its free cash flow for dividends in calendar 2019. The stock’s yield was recently at 5.2%.
During IBM’s first-quarter conference call last week, CFO James Kavanaugh said that “we remain fully committed to our dividend” and that “under the various scenarios we ran, we have ample free cash flow and liquidity to support our business and secure our dividend.”
Hewlett Packard Enterprise
(HPE) earmarked a little more than half of its free cash for its dividend, and
(CSCO) was at about 40%, according to Evercore ISI. Those stocks sported recent yields of 5% and 3.4%, respectively.
On April 20, Hewlett Packard Enterprise declared a regular cash dividend of 12 cents a share, payable around July 1. The figure was in line with its previous recent quarterly payouts.
In February, Cisco declared a quarterly dividend of 36 cents a share, up by a penny, or 3%. That dividend was payable last week.
As of Friday, no technology companies in the S&P 500 had cut their dividends as a result of the pandemic crisis, according to S&P Dow Jones Indices.
Write to Lawrence C. Strauss at [email protected]