What exactly is the purpose of the dividend. This another thing that always bothered me. I am to the point now the dividend was "cover" (as in we are getting a dividend so don't complain) for stock options and poor share performance. Berkshire doesn't pay a dividend. Microsoft never paid a dividend when it was a growth tech company. I mean if click is growing at 20 plus percent a year I would want the money plowed back into the company to grow at twenty percent. Yes you can reinvest the dividends but that's after taxes. I would rather they kept the money and grew that much faster. Are we a growth company that wants to grow or a dividend company like Heinz or Altria??
Click's leadership team has 4 options for its $50+ million sitting in the bank.
1. Continue to sit on the cash and earn shareholders a 1% annual return.
2. Use the funds to acquire something.
3. Return cash to shareholders via a dividend.
4. Return cash to shareholders via share repurchases.
Option 1 is a complete waste. A 1% return is not why we invested in Click.
Option 2 is viable and Click is always looking. Keep in mind, however, the majority of coporate acquisitions eventually result in mild to miserable failures. Merging two different technologies, customer bases, business models and cultures together sounds easy. It isn't. The heaviest cost is often not the acquired company underperforming but the acquiring company running off track because of leadership team distraction. Click's leaders exercised impressive discipline over the years in not chasing acquisitions that were over-priced or not a good fit. That discipline allowed them to keep their focus 100% on their core business and customers. It is tight focus and execution that moved them onto Gartner's leaders quandrant.
Option 3 returns cash to shareholders who can redeploy it to investments earning far more than 1%. The advantages include it returns cash to shareholders who can redeploy it to investments earning far more than 1%. It also attracts yield, institutioinal and value investors who are far less prone to jumping ship if 90 day revenues come in short. That has helped stabiilize the share price on the downside. Excessive volitality is a factor that kept many institutional investors away from the stock.
Option 4, repurchasing shares, is another good route for returning cash to shareholders.
Good luck to everyone.
I have to agree with you on the acquisitions... heck, $50M wouldn't even pay the lawyers and bankers in a real deal... My experience has convinced me the only people who come out ahead in an acquisitions are the Lawyers, Investment bankers and the target's Execs and sometimes shareowners of the target... the buyer gets stuck with all the problems you mentioned and the bills for all the Red Wine and Red Meat.... for anything worth buying, the buyer almost always pays way too much...
I would have to disagree with PaJ's analysis on the merits of a stock buyback.... I think that would be the most tax efficient use of the funds today.... EPS is just one factor that weighs on the stock price and arguably not the most important in a Tech company, one only has to look at CRM to see that.... They should put a floor under the stock and take out all that is offered below that target... the target should be published and raised each year.... I would start at 8 bucks and raise it 50c per year... then if there is still excess cashflow, pay a dividend...
Fuji, generally your posts are very good. This one, however, I have to disagree with you.
1. Continue to sit on the cash and earn shareholders a 1% annual return.-----This is okay if the eventuality is an investment that returns 7-10 times the amount......and yes, you run the risk of having flushed it down the drain. There is no foolproof investment.
2. Use the funds to acquire something.-------This is exactly what should be done.
3. Return cash to shareholders via a dividend.-------No reasonably intelligent investor in a high growth company is expecting a dividend. There are better places to earn a dividend, if that's what the investor needs.
4. Return cash to shareholders via share repurchases.---------Maybe, depending on the impact on the float. Preferrable to a dividend.
Lastly, look back historically at the top gainers in the markets and you will find that very few paid dividends. What does that tell you?
All of the above, just one man's opinion.
1. The company (per the last annual report) has said it would purchase up to 10 million in dividend paying stocks and has invested about 5 million so far.
2. When I say earn 20 percent I am also talking about share repurchases since the company talks about buying dividend paying stocks in the notes to the financials for 2012. So they can buy shares of say General Mills but not Click??? If this growth plan will be a success, do you want them to repurchase now (while the stock price is lower) or wait until the share price goes up so moshe can cash in his options?? A growth tech company should no more pay a dividend than a one legged man without a prosthetic should be in a foot race.
Yep. Dividend or repurchase should occur when the company has no better way to deploy the capital. Hanging on to +$50 million just because you can is not good for anyone.
Repurchasing only works when the company's shares are undervalued by the market. Although I have the freedom to think that ClickSoftware is worth more than its current market capitalization points to, I think the BoD would be hard pressed to argue that the company's shares are undervalued as long as the EPS is as low as it is -- in Training Days terminology, it is not what you know, it is what you can prove.
So, given the EPS constraint, dividend really is the only option.
You can also turn the issue on its side.... as long as the EPS is low (and it will be low until the investment yields results -- overcoming the earnings drag,) the share price is not going anywhere and, therefore, pushing money into repurchasing is probably not going to be effective (imagine that you retired, say, 10% of the equity (a huge amount,) well... the EPS would still look pretty anemic))
As I see it, the dividend is the only rational decision.