Shrewd investors prefer dividends because they are an essential component of total return. Also, during bear markets, they provide downside protection. However, some stocks don’t pay dividends.
Warren Buffett prefers dividend stocks with solid business models. A quality stock with growing revenue and earnings over time with low debt will generate consistent cash flows. In turn, the company pays shareholders dividends.
However, some companies do not pay dividends, especially during their rapid growth years. For instance, Microsoft (MSFT) did not pay a dividend until 2003, almost 17 years after its IPO (initial public offering) in 1986.
Today, several popular and prominent stocks don’t pay dividends. Some of these companies are still growing rapidly. Hence, instead of paying dividends, they are reinvesting in the company, conducting M&A, or repurchasing huge quantities of shares.
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Popular Stocks That Don’t Pay Dividends
1. Berkshire Hathaway
Berkshire Hathaway (BRK.A, BRK.B) is a well-known company known as Warren Buffett’s investment vehicle. Although he loves dividends, Berkshire Hathaway ironically does not pay dividends. It paid a dividend once before, in 1967. He jokingly said he must have been in the bathroom when the decision was made. As long as Buffett controls the firm, Berkshire will probably not pay dividends.
Buffett feels reinvesting in the business is better use of free cash flow. In fact, Buffett addressed this issue in the 2012 annual letter, dedicating three pages to the topic. The bottom line is Buffett has compounded book value at a high rate by reinvesting cash flow in the company rather than paying dividends.
Not all companies can do this. But Berkshire Hathaway is unique because of Warren Buffett. He has demonstrated the uncanny ability to consistently buy companies’ stock, conduct an acquisition, or repurchase shares, adding value for investors.
The second stock on this list is Alphabet (GOOG, GOOGL). The company is often referred to as Google instead of Alphabet. Google has never paid a dividend. However, the firm can definitely pay a dividend based on its $280+ billion of revenue, nearly $75 billion in operating profit, and $60 billion in free cash flow in 2022. Moreover, the company keeps over $100 billion in total cash and short-term investments on its balance sheet.
Instead of dividends, Google has focused on stock buybacks, R&D, and acquisitions, like Fitbit and Mandiant. This strategy is likely to stay the same because Google is still growing. Additionally, Google invests heavily in software and hardware innovation, competing with Microsoft, Apple (AAPL), and Amazon.inc (AMZN), and other companies.
The next major tech stock on this list is Amazon.inc (AMZN), the company Jeff Bezos founded as an online bookseller. Amazon does not pay a dividend. However, it is another tech company with significant revenue and cash flow that could do so. One concern, though, is Amazon’s profit margins are low and fluctuate, like many retailers.
Amazon uses its cash flow and balance sheet to invest in the business and expand into new ones. For instance, Amazon Web Services (AWS) started from internal projects and became an extremely profitable cloud business. The firm continues to invest in the cloud, healthcare, and other innovative but experimental projects.
Tesla (TSLA) is the company that brought electric vehicles to the mass market. It is also one of the largest companiesby market capitalization. However, Tesla does not pay a dividend. Unlike the other growth stocks on this list, Tesla only became profitable in 2020, restricting dividend payments. Also, Tesla is in a very competitive industry, and the automotive industry is known for its cyclicality.
Lastly, Tesla’s policy is to retain all future earnings to finance growth. Hence, investors should not anticipate receiving cash dividends. That said, price share appreciation has been outstanding for Tesla even after accounting for the decline since late-2021.
5. Meta Platforms
Facebook changed its name to Meta Platforms (META) to reflect its grander aspirations. But the company struggled because it stopped doing what it did well, social media. Instead, it focused on a virtual reality headset that cost billions and eventually ended. Facebook is also facing difficulties in its core business because of rule changes by Apple.
That said, Meta does not pay dividends. Instead, the company uses its prodigious cash flow to invest in virtual reality and massive share buybacks. As a result, investors should not expect a policy change under the founder and CEO Mark Zuckerberg.
Netflix (NFLX) is a company almost everyone in America knows. It was one of the first successful mail-order DVD business, which will be ended on September 29, 2023. The firm followed that accomplishment with the successful streaming business. Netflix dominated the space resulting in a rapidly rising top line.
However, Netflix’s free cash flow has not increased at the same rate and, in many years, was negative. So instead, the company has reinvested in the business and increased debt. As a result, Netflix does not pay a dividend.
PayPal (PYPL) is one of the largest digital payment platforms globally. It enables merchants and customers to transact without cash and in many currencies. As a result, it is a lucrative business. However, despite solid free cash flow and profitability, PayPal does not pay dividends.
The business is capital-light, but competition is increasing from companies like Apple, Amazon, Zelle, etc. Hence, PayPal’s growth is slowing.
That said, PayPal generates positive cash flow, has low leverage, and has about $10 billion in cash and short-term investments on its balance sheet. Consequently, PayPal could pay a dividend. But the company has focused on share repurchases, helping increase earnings growth.
8. Advanced Micro Devices
Advanced Micro Devices (AMD) was historically an also ran in the semiconductor industry. Intel dominated the market, and AMD struggled with growth and profitability. But better leadership and partnering with fabs after selling its manufacturing facilities laid the groundwork for better times. Eventually, AMD designed better and more efficient ARM-based chips.
Now AMD is growing market share and thus revenue, profitability, and cash flow. The company’s balance sheet is rock solid, too, with a net cash position. But AMD does not pay a dividend even though it could. So instead, the focus is on share repurchases.
The following stock on this list of stocks that don’t pay dividends is Monster Beverage Corporation (MNST). The company is not a tech stock but a growth stock. Monster is an energy drink company. Larger beverage companies, like Coca-Cola, PepsiCo, and Keurig Dr. Pepper, pay dividends. However, Monster does not pay a dividend.
Monster Beverage could pay a dividend. It is growing, profitable, and has high margins. Additionally, free cash flow is positive, the business is capital-light, and the balance sheet has a net cash position. Also, the main shareholder, Coca-Cola, pays a dividend. But Monster is using FCF to repurchase shares.
Biogen (BIIB) is the first pharmaceutical company on this list of stocks that don’t pay dividends. Many large pharma companies do pay one with long dividend growth histories. But Biogen does not pay a dividend even though it could.
The firm is facing some challenges in its business, typical of pharma companies. For example, the combination of patent expirations, generic and biosimilar competition, and regulatory hurdles make growth cyclical. But Biogen continues to invest in its neurology and oncology portfolio. Thus, Biogen will probably not commence paying a dividend at this point.
11. Regeneron Pharmaceuticals
The second pharmaceutical company we discuss is Regeneron Pharmaceuticals (REGN). The firm is known for its monoclonal antibody technology leadership. The company is profitable, generates solid FCF, and has a net cash position on its balance sheet. However, Regeneron does not pay a dividend, even though it could.
Instead, the firm buys back stock to offset its large issuance and lower share count. Also, Regeneron is growing rapidly but is investing in the business. As a result, a dividend payout is not likely to materialize.
Adobe (ADBE) is a diversified technology company selling digital media, publishing, and advertising software. The Photoshop software is the industry standard for image editing. Market leadership has made Adobe very profitable. It generates growing cash flow, and the balance sheet is pristine.
Consequently, Adobe could pay a dividend but does not. Instead, like many tech companies, Adobe conducts share purchases to boost earnings per share. The dividend policy will probably stay the same in the immediate future.
Disclosure: Long MSFT, AAPL, PYPL
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Prakash Kolli is the founder of the Dividend Power site. He is a self-taught investor, analyst, and writer on dividend growth stocks and financial independence. His writings can be found on Seeking Alpha, InvestorPlace, Business Insider, Nasdaq, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, and leading financial sites. In addition, he is part of the Portfolio Insight and Sure Dividend teams. He was recently in the top 1.0% and 100 (73 out of over 13,450) financial bloggers, as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.