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It hasn't been announced yet and it may not happen this quarter or next, but Google (GOOG) WILL pay a dividend…and sooner than many people think.

It just has too much cash. And not only is Google flush with cash, it generates a considerable amount of cash flow to not only fund the dividend payout, but continue to invest in the business and/or make acquisitions. We're not talking a mortgage REIT type dividend here, the likes of Annaly Capital (NLY) or American Capital Agency Corp (AGNC) but rather, a dividend that is more in line with what some of the 'older' technology companies are paying. It sounds like an oxymoron, 'older technology companies', but let's face it, it's what they are. These are the pioneers of ubiquitous personal computer use, makers of personal computers and laptops, chips that enable computers to function, enablers of high speed information flows, software providers, IT consultants, and manufacturers of really thin and flexible glass used in smartphones and really really big TV's.

All of these companies are in the technology sector, and if you haven't guessed them yet, I'm talking about Microsoft (MSFT), Hewlett Packard (HPQ), Intel (INTC), Cisco Systems (CSCO), Oracle (ORCL), Accenture (ACN), Corning (GLW), and last but not least, Apple (AAPL). It is hard to argue that these are not the dinosaurs of the technology world (save for Apple, maybe). I mean, Intel is now part of the S&P 500 Value index, not the S&P 500 Growth Index. The big difference between these dinosaurs and those that roamed the earth many ages ago, is that these dinosaurs survived and are now leaders in each of their respective industries.

But now they are finding fewer opportunities to grow at the same historical pace that got them here, and they are flush with cash and in most cases, continue to generate so much cash flow they don't know what to do with it. The biggest challenge for some of these companies is deploying that cash to generate shareholder value in excess of what shareholders may be able to generate through other investments, say, a newer, smaller, enabling technology company with ample growth prospects and paying no dividend.

I expect a slew of readers will disagree, and provide ample reasons and/or opportunities available to Google where they can invest their excess cash and generate above average returns. I can't disagree that some of those opportunities are out there. But if they are as attractive and do generate some nice returns above their cost of capital, then Google will eventually have more cash on the balance sheet, and even higher free cash flow. It's a virtuous cycle.

My argument is that right now, they have enough cash to make investments in attractive opportunities or acquisitions, and still pay a dividend. They currently have over $49 billion on the balance sheet and they generate an additional $12 billion in free cash flow per year. While growth projections are still in the 20% range, it has slowed. They are maturing, they're all growed up now. Sergey Brin and Larry Page are approaching 40!!

If you compare the dividends paid by the technology companies mentioned above, I think that Google can easily pay a 2% dividend yield and still maintain enough cash to make acquisitions. By glancing at the table below, you will see an average dividend yield of 2.1%, an average payout ratio of 24%, dividends to free cash flow payments of 25% and dividends to current cash of 15%. A 2% dividend for Google would mean $11.53/share. This is perhaps a bit aggressive in terms of payout ratio and relative to free cash flow, but conservative in regards to the cash they have on the balance sheet.

(click to enlarge)

Even if the dividend is less than what I have calculated here, someday soon, we'll be able to Google (verb tense) 'dividend?', and the result will be…YES.

Disclosure: I am long GOOG, GLW, ACN.

Source: Google's Imminent Dividend Payout