Memory-chip maker Micron Technology (NASDAQ: MU) has had a great run, with the stock up a whopping 230% over the past three years. The current technology boom has led to surging memory prices, leading to an explosion in Micron’s profits. Management recently decided to share this bounty with shareholders, authorizing the company’s first $10 billion stock repurchase program, which should kick in next quarter.
MU 3 Year Total Returns (Daily) data by YCharts.
Some investors think that management should begin paying a dividend instead of repurchasing shares. However, paying dividends is the last thing Micron management should do — and that’s not due to any specific outlook on Micron’s stock. In almost every possible scenario, share repurchases are a superior choice.
The case for dividends
Dividends aren’t bad in general: the ability to pay dividends is a sign of a healthy company, and dividend stocks can be an important source of steady, rising income for shareholders.
Micron should hold off on dividends for now. Image source: Getty Images.
In addition, some believe a Micron dividend would signal management’s confidence in the sustainability of recent profits. Traditionally, Micron has been a speculative, cyclical stock with large swings in profitability. Some theorize that a dividend potentially could attract new kinds of buy-and-hold investors and dividend funds, which might mute the stock’s volatility and boost its valuation.
Why I disagree
However, as a Micron shareholder, I hope management doesn’t start paying a dividend — at least not now. While a company can turn up or down share repurchases at will, dividend-oriented shareholders like steady, rising payouts. Paying a dividend is like getting married — it’s a commitment that is difficult and embarrassing to undo.
While Micron is currently enjoying record profitability, the past few years have been exceptional.
See more at: https://sg.finance.yahoo.com/news/why-apos-not-time-micron-020300509.html