Who Else Has the Cash?

 | Mar 19, 2012 | 9:42 AM EDT  | Comments
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msft

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csco

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atvi

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scmr

Apple (AAPL) finally let us know what it will do with its massive cash hoard. It is about time.

This news that they are paying a dividend and buying back large amounts of stock is welcome news. I have been talking for several years now that the major cash hoarders need to find ways to return the cash to shareholders rather than sitting on it. This is especially true of the big three: Apple, Microsoft (MSFT) and Cisco (CSCO). Not only are these companies sitting on billions of shareholder dollars, they also generate more than enough cash on an operating basis to cover costs. They can afford to return substantial amounts of cash and still fund expansion and research and development. It would nice to see some dividend increases from these companies.

The big three are well known to us all, but I thought it might be interesting to see what other companies had large cash stockpiles relative to their market capitalization that might be in a position to use that cash to reward shareholders. We talk a lot about all the cash on corporate balance sheets but it has been awhile since I took the time to see who has the cash and how it is being used (or not) to benefit the people who actually own the company.

One company that pops up on the list is video game company Activision Blizzard (ATVI). It has about $3.5 billion of cash on the books and no long-term debt. This stock has not done a lot the past few years as a result of a weak economy and slower-than-anticipated consumer spending on gaming. But they own three of the strongest game brands in the industry with World of Warcraft, Call of Duty and Starcraft. Call of Duty in particular has become one of the strongest gaming and entertainment products of all time and the company should be able to continue leveraging it through the Call of Duty: Elite online add-on services. The game sold more than $1 billion in just the first two weeks or so of its releases and sales remain strong. Activison has a strong pipeline for 2012 as well with a new Call of Duty and Diablo III scheduled for release this year. The company has been active in buying back stock and should continue to do so. It also raised the dividend each of the past two years and that is expected to continue. It generates about $900 million in operating cash flow in addition to its stockpile, so it has room to increase shareholder rewards in my opinion.

Sycamore Networks (SCMR) is a stock that I have owned in the past and it still has too much cash on the books. The company has roughly $360 million of cash and investments on its book. It has no long-term debt and the total market cap of the company is just $530 million. The problem here is that the company is still losing money as its customer base is unwilling to spend on bandwidth management until the economy moves solidly into the black. In spite of its short-term difficulties, the company paid special dividends in 2009 and 2010 totaling $16.90 a share. The economy continues to show signs of improvement and as Sycamore's telephone, utility and government clients begin to spend on network equipment and upgrades again, I hope management will further reward shareholders with the cash on the books in the form of regular dividends and buybacks.

I am hoping that Apple is the first of many cash payments to shareholders out of the massive hoard of corporate cash. The CFOs that held onto their money during the recession were quite correct to do so in most cases. But there are signs of economic improvement and I think it is time to reward your patient shareholders by returning some of our money to us.

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