Shares of Google parent Alphabet, Facebook parent Meta Platforms, and Amazon.com have bolstered shareholders’ portfolios this year. But none of the three pay...
Shares of Google parent Alphabet , Facebook parent Meta Platforms , and Amazon.com have bolstered shareholders’ portfolios this year, despite their recent losses. All of the gains, however, come from stock appreciation. None of the three pay cash dividends.We can hear the protests already. Conventional wisdom holds that growth stocks should reinvest free cash flow into, well, fueling more growth instead of paying dividends. That’s fine. Growth requires investment.
Apple’s story is a little more complicated. It started paying a dividend about seven years after its 1980 initial public offering, but was forced to stop in 1995 when it ran into financial trouble. In 1997, co-founder Steve Jobs returned to the company, and 15 years later, Apple resumed paying dividends.
But how much? Microsoft stock has a dividend yield of about 1%. Achieving a similar yield for Alphabet and Meta would require them paying out roughly 30% of free cash flow generated over the past 12 months, according to Bloomberg. That isn’t a big ask. Dividend payers in the S&P 500 have paid out some 55%, or $600 billion, of their $1.1 trillion in free cash flow over the last 12 months. That leaves a margin of safety and plenty of cash flow for growth.
Companies in the S&P 500 index that both repurchase shares and pay dividends return about 50% of the cash paid to shareholders as dividends and the rest as share repurchases. For Alphabet, a 50/50 split would result in a yield of about 1.8%. It has the money. Many other non-dividend payers, of which there are about 100 in the S&P 500, have the money. These companies, excluding Alphabet, spent some $140 billion on buybacks over the past 12 months.
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