Along with motherhood and apple pie, an unbroken string of quarterly dividends is a hallowed American symbol, representing the essence of corporate reliability and virtue.
As with most symbols, the virtue of the dividend is somewhat overstated. Whether a company pays dividends or not, especially in the high-tech age, depends on the nature of the company and its finances.
It is generally accepted that growth and dividends are two sides of the same coin. If a healthy company does not pay dividends, it is probably because the firm is growing rapidly and using its earnings to fuel that growth. If a healthy company does pay dividends, it is probably because it is older, not growing as rapidly and can better afford to distribute some of its earnings. As usual, there are lots of exceptions.
Some companies with good growth pay only small dividends. That may please the stockholders while allowing the firms to retain most of their earnings. It also may permit them to be included on a list of stocks acceptable to institutions.
If no dividends or low dividends are indicative of company growth, then the firms located in the Washington region are heavily on the growth side.
Of 171 companies listed in the Washington Business stock list, 64 firms (37 percent) pay no dividends at all. They are mostly younger, high-tech companies that, almost by definition, are not expected to pay dividends.
Of the remaining companies, 90 (53 percent) offer current dividend yields below 5 percent. Only 17 companies (10 percent) offer dividend yields above 5 percent. As might be expected, 10 of the 17 are utilities and banks.
The executives who run Washington's high-tech companies know that a jump in corporate earnings, leading to optimistic reports about their company and higher stock prices, will do more for investor confidence than four small dividend checks a year.
William Borten, the president of Atlantic Research Corp. of Alexandria, a $145 million company specializing in rockets, missiles and data communications, explained his philosophy this way: "We think investors in our stock are better served long-term if we plow our resources back into research and technology which, we find, enhances the growth of the company."
Atlantic Research shareholders, Borten said, were more interested in future capital gains on their stock than in dividends that would be taxed each year. "It's a choice an investor makes when he invests in a company like ours," he added. Borten said the performance of his company and the stock supported this view. Atlantic Research has a five-year compound growth rate of 38 percent, he said. During the same years, the stock price increased from $5.06 to a high of $42.50. It closed Friday at $35.75.
The view at Atlantic Research seems also to be the view at Evaluation Research Corp., a $32 million high-tech services company in Vienna that pays no dividend. President Jack Aalseth's reasoning: "As long as you have 20 to 30 percent growth, there's no reason to pay a dividend. If you grow at that rate, you do better for the investor if you put the money back into the company." ERC, a younger company, has sold for as low as $3 and as high as $16.75 in the last several years and closed Friday at $7.25.
One high-tech company that breaks the no-dividend pattern is BDM International of McLean, which began paying dividends in response to a freeze on wages and prices in the early 1970s and continued to do so after the company went public in 1980. The stock currently yields 0.4 percent, and the dividend is based on 10 to 11 percent of earnings. President Earle Williams says the amount "is not so large it makes a dent in the cash reserve and yet it's not insignificant either."
Once having climbed on the dividend bandwagon, Williams says, it is hard to get off. "If you stop paying," he said, "it is regarded as something having gone sour." At this point, he notes, he considers BDM "moderately locked in" for regular dividend payments.
"Totally locked in" is the phrase that describes Dominion Resources in Richmond, where dividends are as sacred as they are consistent. There, company executives acknowledge, some investors use Dominion stock as a "safe haven" when the economy is uneasy and the market is moving sideways. Not so in a raging bull market. "It's the last place people put money when everything is going up," said O. J. Peterson, chief financial officer of the parent corporation for the power company that used to be known only as Vepco.
Fortunately for Dominion, 1984 was filled with so much uncertainty that investors flocked to "safety" and the high dividend yield offered by Dominion. Their current 9.5 percent yield is the highest paid by a company on the Washington Business list. A plus for investors was a rise in the stock price from $22.25 to $28.88 during 1984.
Serving as a "safe haven," of course, is full-time job. It's not something a company can do once in a while. So the executives at Dominion not only pay dividends, they pay them regularly and carefully.
"It is pretty crucial to have a steady pattern. Investors don't like to be surprised," said Peterson, noting that the utility tries to increase dividends 5 to 6 percent a year. "If you ever cut, skip or reduce that dividend," Peterson warned, "you can lose a lot of favor in the market. The market will really punish you and your stock could drop $5 to $10 in a day."
Standard Federal Savings & Loan of Gaithersburg, which opted for holding-company status several years ago, has given it up and returned to its old S&L format. The institution says that the holding company offered broader investment opportunities but Standard decided not to enter any unrelated businesses. Moreover, after the S&L moved to the holding company, new federal laws gave thrifts similar authority to make commercial loans and nonresidential real estate loans. The holding company also was said to have restricted the investment activities of Standard officials, although these were not specified. As a holding company, Standard also was regulated by both the Federal Home Loan Bank Board and the Securities and Exchange Commission. By giving up the holding company, Standard also gets rid of SEC supervision.
Standard Federal stock, held largely by bank officials, has not been traded publicly, according to bank officials. Board Chairman Allan Lang, 74, who founded the bank almost 20 years ago, and his son Marvin R. Lang, 43, who is now president, own more than 60 percent of the stock. The thrift institution is entwined with Century Mortgage Co. and StanFed Financial Services Inc., both subsidiaries, along with Bell National Life Insurance Co. Marvin Lang owns 84 percent of Bell's stock. The thrift has assets of about $1 billion.
The Washington Corp., a real estate acquisition and development firm, has offered to buy up to 400,000 shares of its common stock, with first preference going to holders of odd lots -- 99 shares or less. The price offered is $3.25. The stock, traded on the Philadelphia Exchange, moved up from $2.50 on the day of the offer to $3.25 last week. The deadline is March 29. The firm has 2.1 million shares outstanding.
United Virginia Bankshares stock has been on the rise, President Douglas H. Ludeman recently told the Southeastern Banking Seminar. In May 1984, he recalled, he told a similar seminar that the stock at $25 was a good buy. "If you bought it -- and some of you did -- you would have made $11.50 a share or 46 percent, he boasted.