Here’s How Dell Has Investors Feeling the LOVE

Dell (NASDAQ:DELL) listened to its shareholders and announced it would start paying dividends for the first time ever beginning in the fiscal third quarter, and its investors have returned the love. Shares rose 2.55 percent to $12.27 on Wednesday after the company said it would pay a dividend of 32 cents a share per year, or 8 cents a share per quarter, amid an unsteady turnaround effort.

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The move comes at a key time for Dell, which is fighting off worries that it is in the danger of being decimated by Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG), and other mobile device makers in what could soon be a post-PC world. Dell shares are down about 23 percent over the past 12 months.

Technology companies often tend not to pay dividends and spend on research and development instead. But Dell rival Hewlett-Packard (NYSE:HPQ) has long paid a dividend, while Microsoft (NASDAQ:MSFT) has also been rewarding shareholders since 2003. Cisco (NASDAQ:CSCO) started paying a dividend last year, while Apple announced a similar plan in March. Apple’s dividend plan has put particular pressure on competitors, according to Sterne Agee analyst Shaw Wu.

A shareholder proposal for a dividend was defeated at Dells’ annual meeting last July. “It’s been something investors have asked about for years now,” Robert W. Baird analyst Jayson Noland told Bloomberg. “The reaction will be positive.”

The payment represents a yield of 2.7 percent based on Dell’s Tuesday closing price of $11.97. The company is expected to generate $2.25 a share in free cash flow this year, or about 19 percent of its market value. It ended the fiscal first quarter with $17.2 billion in cash and investments. Dell added that it planned to return 20 percent to 35 percent of free cash flow to investors through the dividend and stock buybacks.

“With the cash flows we’ve been generating, up 5 percent last year, we’re very happy to initiate this dividend and return more capital to shareholders,” Dell told CNBC on Tuesday.

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