Does Google Pay Dividends?
First of all, Google is now actually trading under its parent company Alphabet Inc. (ticker symbol togetL).
As most people would know, Google is a transnational company and is known as the main source of cash flow.
Companies of this size and market capitalization often pay dividends to their investors.
However, Alphabet has never done this – the dividend yield is 0%.
Some investors say their generous share buyback program is similar to that of a dividend. This is heavily criticized by many.
Why doesn’t Google pay a dividend?
Google (Alphabet) is known as a growth company. Therefore, the board of directors trusts that the shareholders will benefit significantly more from the fact that the profits are retained and used by the company for further growth.
Because of its ability to innovate, Google is an exciting stock for investors to get on and off with as there are plenty of groundbreaking projects underway.
One such project is driverless cars, which will be the next big thing in consumer electronics.
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While Alphabet hasn’t officially announced its long-term plans for its business direction, it is likely that partnerships with well-known auto brands will be a prospect for the future.
The thought of it inspired investors because of the enormous possible returns on a successful project.
Other areas of investment include smart contact lenses and internet-connected balloons that fly at high altitudes.
Another reason the Google dividend is zero is because acquisitions require as much cash as possible.
Since going public, Google has bought over 150 companies, the largest of which was Motorola in 2011.
There are rumors that Google wants to acquire big entertainment companies like Netflix or Twitter.
Because Google prefers to use cash for acquisitions rather than debt, this is an attractive option for investors.
A distinction should be made between why Google does not pay a dividend and whether it should pay a dividend.
In order for a company to pay you, it has to consider a few things. Such a thing would be their source of income; specifically, how predictable it can be.
In the past 5 years, Google’s earning power has doubled, which in theory informs investors and the board that they could afford to pay a dividend.
Another factor to consider is the company’s financial strength.
Given that Google has $ 80 billion in cash and very little debt, they could be paying a dividend out of their cash balance alone.
Although no money has been paid out as dividends, the money will be returned to investors through share buybacks.
There is currently a $ 7 billion share buyback program in place.
Share buyback plans offer several advantages over dividends. This allows the company’s remaining shares to be worth more – meaning investors’ return on investment grows faster.
Buybacks also alert the market that they believe the stock is undervalued and that the best capital investment is to buy up shareholders over the long term.
How much could Google afford to pay a dividend if it did?
According to the latest reports, Google made just over $ 9 per share. Given a payout ratio of 7%, that would translate into a gross dividend payout per share of $ 0.65 and a dividend yield of 0.07%.
A dividend of 15% would not have a material impact on Google’s financial position. That would equate to a dividend of $ 1.40 per share.
Google could be higher or lower than these examples, but it’s just speculation until official numbers are released if a dividend is deemed a good idea by the board of directors.
Disclaimer: The above information applies to For educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are unfamiliar with exchange-traded options. All readers interested in this strategy should do their own research and seek advice from a licensed financial advisor.