Should Dividend Investors Consider Hewlett-Packard?

Hewlett-Packard’s (HPQ: 29.07 +2.00%) market cap has now lost $17 billion since CEO Mark Hurd “resigned” on August 6^th. HPQ shares have slid 16% and now sit at a 52-week low. So the big question is whether investors should consider Hewlett Packard at these levels?

 

For dividend investors, one of the first metrics that they look at when evaluating a stock is their dividend yield. Despite the significant drop in Hewlett-Packard’s stock price, their dividend yield has only risen to 0.8%. This is significantly below the 1.9% average yield on the S&P 500 index and hardly enough reason to get excited about any stock.

 

Of course a low dividend yield isn’t necessarily a bad thing if the company is committed to increasing their dividend. Unfortunately, in Hewlett-Packard’s case they have not demonstrated any conviction in increasing their nominal dividend rate. In fact, the tech giant has not increased their dividend since 1998. We affectionately call these types of companies “fake dividend stocks”.

 

Value investors will argue that HPQ now trades at less than 8x consensus 2011 earnings. The company also just reported solid quarterly results and is a tremendous cash flow machine. Still the fact remains that one of the largest publicly-traded firms in America is currently operating without a CEO. This leaves a big question mark on this stock and the market hates uncertainty.

 

HPQ shares will likely get a nice pop once a new CEO is announced, but until then the trend seems to be headed lower. While value investors may soon step in to prop up this stock, without a serious dividend yield it’s hard to imagine that dividend investors will consider Hewlett-Packard.

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