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Workers assemble components at a Celestica factory in the southern China city of Dongguan.Vincent Yu

David Einhorn's complaints about Apple Inc.'s "depression-era mentality" towards returning some of its $137-billion in cash to shareholders may put pressure on other technology companies to explain their excess capital.

And since investor cravings for dividend-paying stocks shows no signs of stopping, tech firms such as Celestica Inc. could benefit from reviewing their cash-return strategies, one analyst says.

In January, the electronics manufacturer reported a decline in profits tied to its restructuring efforts and the end of its contract work for Research In Motion Ltd. But CIBC World Markets analyst Todd Coupland argues in a research note today that the main reason Celestica's share price has performed worse than its peers (and the tech sector in general) comes down to the fact that it doesn't pay a dividend.

Getting capital back out to shareholders is more important than ever, especially "given this sector has matured over the past decade and is now, from a broader perspective, considered cyclical similar to industrials," said Mr. Coupland.

Celestica would do well to align itself with the IBMs of the tech world when it comes to allocating capital, he said. In the past six years, Celestica has repaid debts and returned 37 per cent of free cash flow in buybacks. Its stock rose 14.5 per cent.

What it hasn't done is pay out a dividend.

In the same time period, IBM's decision to pay out 105 per cent of its free cash flow has contributed to the company's 120 per cent stock price boost, Mr. Coupland points out. This compares to Microsoft, which returned 69 per cent of its free cash flow in dividends and buybacks, but with a fairly static share price.

While the author does say other factors can influence a stock, in this case IBM comes out a winner in the market, even though Microsoft had the higher revenues and swifter cash flow growth.

Using a similar model, Mr. Coupland estimates Celestica "can and should fully allocate its free cash flow to dividends and buybacks." He thinks a 3 per cent yield would be enough to make up for the company's tempered growth. The stock, which was trading at $8.75 per share on Tuesday afternoon, could have offered a dividend between 20 and 50 cents. By his math, the stock price would be at $11 at least.

It's not totally surprising to hear these two company names linked, since Celestica was once a division of IBM Canada Ltd. before being bought by Gerry Schwartz's investment firm, Onex Corp. and subsequently going public.

But what about capital reserves for future deals? "The company also has plenty of cash on its balance sheet that can be used for targeted and tuck-in M&A which is a stated part of its strategy," said Mr. Coupland.

(Jacqueline Nelson is a Globe and Mail Financial Services Reporter.)

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 4:00pm EDT.

SymbolName% changeLast
AAPL-Q
Apple Inc
-1.06%171.48
CLS-N
Celestica Inc
-1.36%44.94
CLS-T
Celestica Inc Sv
-1.51%60.86
CM-N
Canadian Imperial Bank of Commerce
+1.3%50.72
CM-T
Canadian Imperial Bank of Commerce
+1.13%68.67
IBM-N
International Business Machines
+0.08%190.96
MSFT-Q
Microsoft Corp
-0.17%420.72

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