To Be Flush With Cash

 | Mar 22, 2012 | 9:30 AM EDT  | Comments
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Stock quotes in this article:

aapl

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orcl

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ebix

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mant

Recently, Apple (AAPL) finally succumbed to investors' cries for cash: It has instituted a quarterly dividend.

Companies typically pay dividends because their business is mature, investment options in their industry are limited and they are no longer growth names. Put another way, they have gone from growth to value.

But this scenario does not always hold. Some growth companies pay dividends because their growth is so rapid, that they generate more cash than they can effectively invest. Apple is a prime example. It is sitting on a cash pile domestically worth about $36 billion (and cash heard overseas of another $64 billion). As Apple CEO Tim Cook has said, that is more money than the company needs for its business.

Apple is not alone. Others may lack Apple's cash and growth rate, but they are growing nicely and have more green than they need.

I have found several companies, all in the tech industry, that are not only dividend-paying growth companies, but also get a nod from one of my guru strategies -- computerized stock screens I created based on the writings of Wall Street's most effective investors.

One such company is among the world's largest software companies: Oracle (ORCL), which sells enterprise solutions to corporations, including databases, applications and hardware. The stock's yield is projected at 0.8%, profit in the most recent quarter was up 18% and the company says it added 1,000 sales and marketing jobs in the last quarter. That's on top of 1,700 hired in similar positions last fall. Oracle is performing on all cylinders.

My Warren Buffett-based strategy also pegs Oracle as a company to buy now. That's partly because the company is a leader in its market segment, and it's also because earnings are predictable, having increased in each of the past 10 years. Meanwhile, debt is moderate -- it can be paid off with less than two years worth of earnings -- and return on equity over the past 10 years has been a robust 26.2%. Also in its favor is that the strategy estimates investors will earn an annual average return of 15.6% over the next decade. Oracle may not have the cache of Apple, but it has strong growth and solid financials and pays a dividend.

Another dividend-paying growth company liked by the Buffett strategy is Ebix (EBIX) -- a lesser-known gem that sells software and e-commerce solutions to the insurance industry and operates in more than 50 countries. Ebix was ranked in Fortune as the fourth-fastest-growing technology company in 2011, and 19th among the 100 fastest-growing companies across all industries. Its projected yield is 0.68%.

Ebix is a leader in its industry segment, EPS has risen in each of the past 10 years (save for one flat growth year), its debt can be paid off with less than a year's worth of earnings and it has an average return on equity of 21%. The Buffett strategy furthermore predicts a return to investors of a very nice 18.2% a year.

Also consider ManTech (MANT), which sells information technology and technical services to the U.S. government, with a focus on national security. The stock's yield is 2.5%. The company, which enjoyed double-digit growth last year, started paying a regular dividend in fiscal 2011 -- and, beginning in 2012, it will pay dividends quarterly rather than semi-annually.

ManTech earns a perfect grade from a strategy I modeled on Joel Greenblatt's approach to investing. This screen ranks a company based on its earnings yield, and ManTech's is 16.58%. That ranks it at No. 68 among all the stocks in our database. Next, the strategy considers return on total capital which, for ManTech, is 58.85% for a ranking of 111. The last step is to generate a ranking for both of these criteria, and ManTech achieves an enviable No. 12. That's a great performance. That's not to mention the company's dividend.

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