Alphabet Inc. is experiencing a significant cash influx, leading to growing speculation that the tech giant may consider initiating dividend payments, following a similar move by Meta Platforms Inc.
While Alphabet has been primarily focusing on share buybacks with its excess cash in recent years, analysts anticipate that an additional $70 billion could be allocated for this purpose when the company releases its earnings on April 25. However, financial experts from JPMorgan Chase & Co. and Truist Securities suggest that introducing a dividend could further enhance the company’s stock performance, akin to Meta’s dividend declaration in February that resulted in a 20% surge in share value.
Andrew Zamfotis, portfolio manager at Ami Asset Management Corp., commented on the potential dividend, stating that while investors still seek growth from tech companies like Alphabet, there is also value in demonstrating cost discipline and prudent capital allocation through dividend initiation.
Although dividends have traditionally been associated with mature and slower-growing firms, the trend is gaining traction within the tech industry. Apart from Meta, companies like Salesforce Inc. and Booking Holdings Inc. have recently introduced dividend programs. Among the top six US tech companies by market capitalization, Alphabet and Amazon.com Inc. are the only ones yet to implement a quarterly dividend.
Alphabet’s stock has seen a 10% increase this year, outperforming Microsoft Corp. and the Nasdaq 100. The company’s focus on generative AI strategies has been a key driver of recent stock performance, despite a temporary dip in March following disappointing earnings and concerns over AI tools impacting its search advertising dominance.
With Alphabet’s anticipated revenue growth of 14% this year and ongoing cost-saving measures bolstering profitability, projections indicate that the company’s free cash flow could reach a record $83 billion by 2024. As of the end of 2023, Alphabet held over $110 billion in cash and equivalents.
Tejas Dessai, a research analyst at Global X ETFs, suggested that Alphabet may follow Meta’s footsteps by introducing dividends this year, considering its strong financial position and cash reserves.
