Despite its precarious start almost two decades ago, when Elon Musk believed the company had just a 10% chance of success, Tesla has defied the odds to become a behemoth in the global automotive industry.
Indeed, according to Backlinko, it sold more electric cars than any other electric vehicle manufacturer in the first eight months of 2021 and drove $22.35 billion in revenue within a similar timeframe. Tesla’s success is one reason its (TSLA) stock stands out as a compelling opportunity for investors. Before you jump on the phone with your broker, though, it’s worth asking the following question: does Tesla pay dividends?
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Does Tesla Pay Dividends?
The one-word answer to this question is “no.” Tesla Inc. does not pay dividends- at least, not in the standard sense. While the company has made it very clear (more on this in the next section) that it has no plans to issue regular cash dividends, it has issued a semblance of them in the past via a stock split.
In other words, although new investors may never receive any liquid capital, they may collect payouts in the form of additional shares, i.e., stock dividends. In fact, Tesla made a regulatory filing in March this year that revealed plans to conduct a stock split in the near future. Of course, this stock split remains contingent on board approval, but it’s left many current and aspiring shareholders feeling excited. Why?
Because the last time Tesla did this, in August 2020, its stock price rose by 80%. In a 5-for-1 split, investors received an extra four shares for every one they currently held. Given that TSLA shares have more than doubled since then, payouts of this nature hold the promise of sizeable returns.
Why Doesn’t Tesla Pay Cash Dividends?
The fact that Tesla refuses to pay cash dividends may be both surprising and disappointing to would-be investors. After all, according to Portfolio Insight*, not only does its market cap sit at over $902 billion (it has previously been a trillion-dollar company), but other big names in the automotive industry do pay dividends. These include Ford Motor Company (F), General Motors (GM), Toyota, and Volkswagen. Although Ford and GM did suspend payments in 2020 due to the financial impact of the COVID-19 pandemic.
However, Tesla’s approach isn’t without rhyme or reason. In this section, we’ll explain why it maintains its current dividend policy.
Tesla’s contact page explains its stance on dividends in no uncertain terms:
Tesla has never declared dividends on our common stock. We intend on retaining all future earnings to finance future growth and therefore, do not anticipate paying any cash dividends in the foreseeable future.
This, ultimately, is the crux of the matter. Rather than heed the call from shareholders who’d love a slice of company profits, Musk and his board of directors are focused on expansion. Withholding cash dividends enables reinvestment, allowing them to move into new markets and fund exciting projects like the long-awaited cybertruck and self-driving robotaxis.
Tesla’s profitability comes into play here too. You might expect it to be flush with cash for a company with a market cap that surged by 783.42% between 2019 and 2020, moving from a relatively paltry $75.7 billion to a staggering $668.9 billion, making Elon Musk wealthy.
Yet, despite that astronomic growth, Tesla only became profitable two years ago. While it turned a sizeable profit of $721 million in 2020, Tesla made a whopping loss of (-$862) million as recently as 2019, as seen in the summary table from Stock Rover*. Indeed, prior to 2020, the company operated at a loss in almost every quarter since its inception 17 years earlier.
These revelations may make Tesla’s dividend policy easier to understand. After all, dividends aren’t paid out of a company’s operating income. Instead, they’re taken from its profits. Thus, while its bottom line has improved in recent quarters, Tesla simply hasn’t had the resources to sustain dividend payments. Even now, with profits in the hundreds of millions of dollars, the results are arguably insufficient to justify cash dividends- especially when you take into account Tesla’s commitment to growth.
Time to Invest in TSLA?
If you purchased $1,000 of TSLA stock back in 2010, your money would have increased 12-fold within eight years. Based on market capitalization, Tesla eventually became one of the 10 biggest companies in the world. Tesla even became one of only six trillion dollar companies, before the share price declined.
Of course, given Tesla’s present-day prominence, it’s questionable whether you’d enjoy a similar return on investment (ROI) if you invested today. The truth remains, though: this company’s committed to growth, has a track record of herculean stock price gains, and seems destined to seize ever more market share over time.
Despite its ongoing refusal to pay cash dividends, then, there remains plenty of incentive to buy Tesla shares. Alongside the promise of a forthcoming stock split, it seems possible that your investment would have positive returns.
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