Last Tuesday something historic happened. Amdocs Ltd. (NYSE: DOX), one of Israel's technology giants, announced the distribution of a dividend for the first time since the establishment of the business support services and billing company.
Until now, Amdocs, which has been publicly traded for 14 years, has not had the word dividend in its dictionary. But now the company has changed its tune and reached the conclusion that the time has come to share some of the company's rich cash reserves ($896 million) with investors instead of just buying back shares.
This exceptional event is worthy of closer inspection. Distributing a dividend, especially for the first time in a company's history, is implemented in most instances because the share itself is not attractive enough, or when the future activities of the company do not look particularly rosy. In an optimal situation this is not something that makes the investment attractive.
And this is the case with Amdocs. From the start of 2012, the share has risen close to 8%, while in 2011 the share rose just 4%. The Nasdaq 100 Index itself has risen 13% since the start of 2012 and 5% last year. The Nasdaq composite index of 1,000 companies has risen even higher - 15% since the start of the year and 10% last year.
In short, Amdocs's share has not performed well compared with the market and the repeated and intensive buy back of shares has not helped the company. In all 20% of Amdocs's capital has been used for buy backs in the past two years - and after this period the share price is treading water. Amdocs is currently being traded at a share price of $30.76, giving a market cap of $5.3 billion.
A second thing and no less important is the size of the dividend which will be distributed by the company starting from the first fiscal quarter of 2013 (ending December 2012). Amdocs will distribute, according to the decision taken by the board of directors, a dividend of $0.13 per share per quarter, in other words $0.52 per share annually ($88.3 million in absolute terms) - reflecting an annual return of no more than 1.6%.
A dividend return of 1.6% is low, really low, and hardly something that will make the share more attractive than in the past. And looking at the share's behavior since the expected dividend was announced, it has fallen by nearly 3%.
And so Amdocs, according to its own declarations, will return half of its free cash flow to shareholders (through share buy backs and dividends). This policy won't help its share, and it is doubtful if it will help it in the future.
Amdocs long ago became a company of value rather than a company of growth, which finds it difficult to provide the investor (revenue will grow this year by no more than 4%). It currently seems that even the historic distribution of a first dividend does not excite the company's shareholders.
Published by Globes, Israel business news - www.globes-online.com - on May 6, 2012
© Copyright of Globes Publisher Itonut (1983) Ltd. 2012