Hewlett Packard (HP) got a lot of bad press in the last quarter of 2012 and perhaps deservingly so. The company’s purchase of Autonomy was criticized as one of the worst capital allocation decisions of all time.
Most embarrassing was the admission by its management that it did not do proper due diligence before making the acquisition, which most shareholders deemed as expensive from the very beginning. None the less, while the price for the acquisition was always questionable, the strategic intent behind it was never doubted. HP wanted to acquire Autonomy to equip itself for the higher margin services business.
There is a lot of negativity surrounding Hewlett Packard at present due to a series of management blunders (including the one mentioned above) over the last few quarters. Both Dell and HP are both trying to imitate IBM’s strategy by shifting their business model away from the hardware manufacturing sector. While Dell seems better equipped than HP to achieve that objective, among the three stocks HP is currently selling at the most attractive dividend yields.
|
Company |
2012 (TTM) |
2011 |
2010 |
2009 |
2008 |
|
HP |
3.40% |
0.93% |
0.62% |
0.95% |
0.68% |
|
Dell |
1.50% |
0% |
0% |
0% |
0% |
|
IBM |
1.70% |
1.52% |
1.67% |
1.86% |
1.30% |
Dividend Yield (HP, Dell and IBM)
The dividend yield is sufficient to merit an analysis of HP as a dividend yield bargain stock, within a highly diversified portfolio of similar bargain stocks. Of course, in order to be a sound dividend yield bargain a company must have a good track record of paying dividends, and it must be expected to generate enough cash from operations to continue the dividends in the near future. HP satisfies both conditions. Cash flow generation for HP has been strong over the last few years. HP has also reduced some of its debt in the last few quarters with cash generated from operations.
There are however plenty of risks associated with HP’s stock; another reason why the stock has been on a steady decline over the last couple of years. Autonomy may not be the last in a line of blunders and the company recently reported lower than expected earnings as a result of the Autonomy acquisition.
Investors can diversify their risk, however, by identifying a large number of stocks at attractive dividend yields. Companies of adequate size with a good track record in paying dividends and generating cash from operations can create a well-diversified stock portfolio that performs quite well over time.
[related2][/related2]
