Investors worldwide were pleasantly surprised when Meta Platforms made an announcement on Thursday – it would be issuing its very first quarterly dividend. Shareholders of record on February 22 can look forward to receiving a 50-cent dividend payment on March 26.
Curious big tech investors might find this move by Meta unfamiliar, as they are not accustomed to quarterly payouts from the company. However, there is no cause for concern. These dividends signal positive implications for Meta’s stock moving forward.
With an annualized payout of $2, shareholders can enjoy a dividend yield of 0.4% based on the early Friday share price of approximately $472. Following better-than-expected fourth-quarter earnings, Meta’s stock experienced a nearly 20% increase during early trading. In comparison, the S&P 500 and Nasdaq Composite rose by 0.2% and 0.7%, respectively.
While Meta’s payout falls below the average yield of 2% for dividend-paying stocks in the S&P 500, it is important to note that companies often start with smaller dividends. Investors can now anticipate the growth of Meta’s dividends alongside potential stock gains.
Drawing a parallel, it is worth mentioning that Microsoft initiated its first dividend on January 16, 2003, with an annual dividend of 8 cents per share, resulting in a yield of approximately 0.3%. A year later, Microsoft’s stock had risen by 10% and the annual dividend for 2024 was increased to 16 cents. Presently, Microsoft pays a quarterly dividend of 75 cents, having distributed over $28 to shareholders since 2003 – surpassing the stock’s initial price when the first dividend was announced.
Investors, especially those with a fondness for dividends, will undoubtedly welcome this exciting development from Meta Platforms. The introduction of quarterly dividends signifies positive growth potential and promises a brighter outlook for Meta and its shareholders.
The Impact of Dividends on Tech Stocks
In the world of technology stocks, dividends were once a rarity. However, in recent years, there has been a shift as companies like Apple have reintroduced dividend payments. This move not only benefits shareholders financially but also serves as a signal of management’s confidence in the company’s future.
Apple’s Dividend Success
Apple, a company renowned for its innovation and market dominance, made headlines when it recommenced paying dividends in 2013. The initial dividend declared on January 23 that year was $2.65 per share. After adjusting for stock splits, this resulted in an annualized yield of approximately 1.4%. Impressively, Apple’s share price soared by about 24% in the following year following the dividend announcement. Since then, Apple has paid a total of around $34 per share in dividends.
The Potential for Other Tech Giants
While Apple’s success story with dividends is encouraging, it raises the question of whether other tech giants will follow suit. As of now, three out of the seven so-called “Magnificent 7” stocks pay dividends—Tesla, Alphabet, Nvidia, and Amazon.com do not.
Out of these four non-dividend payers, two have the potential to introduce dividends in the future: Alphabet and Amazon.
With positive projections for its free cash flow, analysts estimate that Alphabet could achieve a 1% dividend yield by paying out around 25% of its free cash flow—expected to be approximately $77 billion in 2024. Comparatively speaking, this would not be a burdensome amount for Alphabet. Typically, S&P 500 dividend payers distribute about 50% to 60% of their free cash flow. By starting with a modest yield like 1%, Alphabet can retain ample cash to invest in its continued growth.
Amazon’s Dividend Feasibility
On the other hand, Amazon faces some unique challenges. While the company certainly has the cash flow to support dividend payments, its cash flow tends to fluctuate significantly. In 2023, Amazon generated approximately $37 billion in free cash flow but only utilized about $12 billion in 2022. Nonetheless, projections indicate a positive trend, with an anticipated free cash flow of $66 billion in 2024. By paying out just 20% of this amount, Amazon could achieve a yield of approximately 0.8%.
The Impact of Dividend Announcements on Stock Prices
It is worth considering why stock prices often soar following the announcement of dividends. While various factors contribute to this phenomenon, including overall economic conditions, dividends generally serve as an indicator of management’s confidence in the company’s future prospects. Moreover, introducing dividends also attracts investors who specifically seek out dividend-paying stocks.
In conclusion, dividends are typically welcomed by shareholders in the tech industry. Apple’s success story serves as inspiration for companies like Alphabet and Amazon, encouraging them to consider the potential benefits that dividends can bring both financially and in terms of investor confidence.