Dell's Dividend Announcement Might Signal A Dividend Peak

After the close on Tuesday, Dell (DELL) announced that the Board of Directors has adopted a dividend policy under which the company plans an initial dividend rate of $0.32 per share per year. Based on the current price, the dividend yield would be 2.7%.

Considering the recent history of share repurchases, this move towards a decent dividend highlights the shift in mindset for the market. Dell has repurchased 14% of its outstanding shares over the last four years and considering the company trades at a sub 6 PE the logic would suggest continuing that plan. Why start a dividend now?

The market, though, has increasingly stated that share repurchases don't work. Sure looking at Figure 1 below suggests that theory to be correct, but where would the stock price be if the company hadn't bought all those shares? The 2014 estimates around $2 would quickly drop to around $1.72 without the share reduction. Investors forget that these moves don't happen in a vacuum.

Read the full article at Seeking Alpha.

Disclosure: Long CSCO. Please review the disclaimer page for more details. 


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