Are you thinking of investing in GOOG or GOOGL stock this year? Well, you won’t be the only one. Having generated $257 billion in revenue last year with, according to the same source, a profit margin of 29.51%, there’s no shortage of incentive to do so. But does Google pay dividends as well?
That’s the question on many aspiring investors’ minds- not to mention a point of contention among existing shareholders. In this article, we’re going to dive into the topic and outline the reasons behind Google’s current dividend policy.
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Does Google Pay Dividends?
In a word, no. Despite the fact they now hold an enormous $169.2 billion in cash, Google (or, to be more accurate, Alphabet- their parent company) does not pay dividends to investors. In fact, the dividend policy on their 2017 annual filing with the SEC explicitly states,
We intend to retain any future earnings and do not expect to pay any cash dividends in the foreseeable future.
Why Doesn’t Google Pay Dividends?
That’s a good question. After all, why would a company with a market cap of $1.77 trillion refuse to pay dividends- especially when other businesses of a similar size (such as Apple and Microsoft) do? In this section, we’ll detail the key factors in play.
Research and Development
Google’s a unique company in the tech space because it has a proverbial finger in many different pies. With over 3.5 billion searches per day, it’s undoubtedly the biggest search engine on the internet. But it also sells smartphones, tablets, smart home products (via Google Nest), software, and other tech products of that nature.
Its ambitions around growth and expansion show no signs of slowing either. Alphabet’s currently working on everything from driverless cars (through its sister company, Waymo) and an enterprise edition of Google Glass to a drone delivery service called Google Wing.
As you can imagine, these forward-thinking projects don’t fund themselves. By withholding dividend payments from shareholders, Alphabet frees up capital to invest in ongoing research and development. Indeed, the company spent a staggering $31.56 billion on R&D last year- up from $7.14 billion in 2013. Only Amazon (AMZN) spends more than that on R&D per annum.
Mergers and Acquisitions
R&D isn’t the only reason Alphabet’s cash holdings come in handy. They fund its sky-high rate of company acquisitions as well. According to CNBC, Google’s parent company spent $22 billion on 22 separate deals last year (a 10-year high in terms of aggregate deal volume). Recent noteworthy purchases include Fitbit Inc. (FIT) for $2.1 billion at the start of 2021 and cybersecurity firm Mandiant Inc. (MNDT) last month in an all-cash transaction worth almost $5.4 billion.
This unprecedented rate of acquisition could, in part, be driven by a looming crackdown from the FTC on supposed antitrust violations by big tech companies. But it’s also a symptom of Google’s competitiveness and commitment to innovation in the tech world. Despite the scale of its current empire and the clarion call from some shareholders to add more value through dividend payments, Alphabet’s a growth company through and through. Every cent it withholds from investors is additional capital it can reinvest to spur growth.
Does Google pay dividends? Not yet. But it does have a repurchase program that lets investors sell their shares back to the company. Indeed, after 12 months of record-breaking sales, Alphabet announced a $50 billion share buyback in April 2021, which followed the board’s authorization of a $25 billion share buyback program in 2019. Despite the lingering frustration of not receiving dividend payments, some pundits argue this ends up being more lucrative for investors in the long run.
After all, not only do repurchase programs elevate the value of Alphabet’s remaining shares (thereby boosting investor ROI much faster), but they also tell the market that the company believes its stock is currently under-priced. Ultimately, a surge of demand ensues, which pushes the value of your portfolio up with it.
Time to Buy GOOG and/or GOOGL Stock?
Since its inception in 1998, Google has grown into a household name and one of the largest companies on the planet. It’s little wonder, then, that so many investors seek to transition from a Google customer to a Google owner. Before taking the plunge and purchasing Alphabet’s GOOG or GOOGL stock, though, many understandably wonder “does Google pay dividends?”
If that’s been the question on your mind, then we hope the insights in this article have been useful. While dividend payments remain off the menu for now, there’s still a wide array of incentives to buy Alphabet shares. As one of the most innovative and fastest-growing firms out there, you’re likely to enjoy a sizeable return on investment over time. To learn more about similar topics and take your portfolio to the next level, check out our Dividend Investing Resources page.
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