Source: Finance Association
① Since this year, many technology companies have introduced quarterly dividends. Although dividend yields are generally not very high, this news still has a sensational market influence; ② Homestead Advisers stock fund manager Mark Iong said that dividends will become the standard for large technology companies in the future.
For years, American technology companies have sought growth at any cost. Now, however, they are beginning to more emulate the practice of traditional value companies — paying dividends.
As the cash generated in the course of business operations continues to exceed their spending plans, the practice of paying dividends regularly also provides further evidence of the strong financial strength of these companies.
Since this year, several technology companies have introduced quarterly dividends, and although dividend yields are generally not very high, the news still has a sensational market impact — because investors believe that these companies' dividend movements indicate that they can continue to provide strong cash flow.
For example,$Alphabet-A (GOOGL.US)$/$Alphabet-C (GOOG.US)$Dividends were first announced last month, stating that a dividend of 20 cents per share would be paid, triggering an increase of up to 10% in the company's stock price.$Meta Platforms (META.US)$A dividend of 50 cents per share was also paid for the first time in February of this year, which also contributed to a historic sharp rise in its stock. Furthermore,$Salesforce (CRM.US)$und$Booking Holdings (BKNG.US)$Dividend plans have also been announced one after another this year.
Judging from market performance, Meta's stock price has risen by about 35% this year, while Google has risen 21%. The performance of both far surpassed$NASDAQ 100 Index (.NDX.US)$An increase of about 7.9%.
Mark Iong, Equity Fund Manager at Homestead Advisers, said, “Dividends will become the standard for big tech companies in the future. I think if you don't pay dividends, it will now be seen as a sign that your business is more volatile.”
In many cases, the tech giants' newly launched dividend plans are often accompanied by large-scale share buybacks, indicating that they are beginning to focus more and more on giving back to shareholders. Meanwhile, given that the AI concept continues to drive rising stock prices, investors expect this combination will help form a “double insurance” for these tech giants' stock prices.
Iong stated, “It's exciting that while they are implementing dividends and share buybacks, they are also cutting costs and maintaining profit growth.” He pointed out that currently, out of the so-called Big Seven US stocks, only$Amazon (AMZN.US)$und$Tesla (TSLA.US)$Interest hasn't been paid yet, but he expects it will be difficult for Amazon not to follow suit in the future.
Recently, when asked to comment on related topics, an Amazon spokesperson quoted Chief Financial Officer Brian Olsavsky's statement at the earnings conference as saying that the company's focus is on capital expenditure and debt repayment rather than shareholder returns. Tesla, on the other hand, said on its website that the company does not expect to pay any cash dividends for the foreseeable future.
Giving back to shareholders
Of course, compared to dividends, repurchasing shares is still the preferred method for these companies to give back to shareholders. According to data compiled by the industry, the big seven US stock companies spent nearly 58.5 billion US dollars on repurchases this year, while the capital used for dividends was less than 11 billion US dollars.
While paying dividends, Meta also repurchased 50 billion US dollars, while Google also authorized a repurchase of 70 billion US dollars while paying dividends. Apple, which began paying dividends more than a decade ago, announced earlier this month the largest repurchase in US history — up to 110 billion US dollars, surpassing the previous record of 100 billion US dollars set in 2018.
“These companies are still in a buyback cycle, and dividend returns aren't significant, but I think the companies are moving in this direction, which explains the problem,” said Daniel Peris, senior portfolio manager at Federated Hermes and author of several dividend investing books.
Peris said, “As a dividend investor, it's a good sign that an established company will pay dividends, but it only makes sense if dividend yields also increase, and we haven't reached this level yet.”
High cash flow and a solid balance sheet have long been the core reasons Wall Street favors big tech stocks. It is expected that the six largest US tech stocks (Big Seven excluded$Tesla (TSLA.US)$) Total free cash flow of over $416 billion will be generated this year.
Technology companies' dividends are actually still relatively small. Meta and Google's dividend yields are currently below 0.5%, the hegemony of AI chips$NVIDIA (NVDA.US)$The quarterly dividend yield of 4 cents per share is only 0.02%, and has not been raised since 2018, while$Apple (AAPL.US)$The dividend yield has also barely exceeded 0.5% for a long time. In contrast,$S&P 500 Index (.SPX.US)$The average dividend yield is 1.37%.
Despite this, part of the dividend is meant to encourage long-term holding, and its impact will accumulate over time.
Investors can easily calculate an account:$Microsoft (MSFT.US)$The dividend yield is also only around 0.7%, but related earnings will continue to accumulate over a long period of time — in the past 20 years, Microsoft's stock price has risen by about 1500%. If dividends are taken into account, the total return can actually be as high as 2,400%.
editor/tolk