When Microsoft holds its annual meeting with Wall Street's bean counters on Sept. 14, investors' obsession with higher dividends for tech companies will be on full display. But I don't mean to pick on Microsoft exclusively. The subject of tech shareholders' returns more broadly speaking was brought nicely into focus last week with a report from Morgan Keegan's Tavis McCourt, who has been a relentless voice for greater payouts.
McCourt, who argues that hoarding cash is "destroying equity value" in tech stocks, points out that despite better growth prospects than many industries, tech as a whole trades at a lower price-to-earnings multiple than many other sectors, including moldy old industrials. With the highest cash balance of all the sectors he tracks relative to total capitalization, and some of the best earnings growth prospects, tech stocks also have the lowest valuation on average, by his estimation. Cash makes up on average 28% of tech companies' enterprise value.
Source: Baron's
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