Amazon (AMZN) needs no introduction. Founded by former CEO Jeff Bezos in his Washington garage in 1994, what started as a small online bookstore has morphed into one of the world’s biggest companies that sells, well…everything. Investors have benefitted too as the company’s market cap grew into one of the largest in the world. But some investors ask does Amazon pay dividends too, especially the ones seeking passive income.
Amazon is an immense company. Statistics from techjury.net provide a sense of its scale. A mind-boggling 197 million people visit Amazon.com each month and over 90% of online shoppers in the US have bought something from the platform. Those numbers are almost unbelievable, but they help explain how, according to Portfolio Insight*, Amazon generated an astonishing $477.75 billion in the 12 months leading up to March 31, 2022.
Clearly, this company has gone from strength to strength over the last 27 years, which is a big reason it attracts so much attention from investors.
But does Amazon pay dividends too? That’s the question on many aspiring investors’ minds and the one we’re going to look at today. Keep reading to learn all about Amazon’s dividend policy and the main reasons behind it.
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Does Amazon Pay Dividends?
We’ll cut to the chase. No, Amazon does not pay dividends. It hasn’t paid them in the past and there’s nothing to suggest that will change in the foreseeable future.
This may seem surprising given the company’s dominance in the e-commerce space – not to mention the fact other tech stocks, such as Cisco Systems (CSCO), have chosen to initiate dividend payments in the last decade or so. Cisco started paying a dividend in 2011 and has since turned into a dividend growth stock.
However, Amazon is not ideal for income investors, but it shouldn’t necessarily put you off. Why?
Because you can expect to be rewarded in other ways. Indeed, Amazon stock has skyrocketed in value by nearly 900% over the last 10 years, with a market cap that’s burgeoned from ~$88.1 billion to approximately $1.08 trillion. If you’d invested $10,000 in 2012, it would now be worth almost $90,000. Talk about return on investment (ROI).
Key Reasons for Amazon’s Current Dividend Policy
There are good reasons behind Amazon’s current stance on dividends as well. In this section, we’ll run through the main ones.
Ultimately, it boils down to one factor: growth. Amazon has been a growth company from the outset. Rather than pay out a proportion of its revenues to appease dividend-seeking shareholders, the company reinvests what it earns to facilitate expansion – trusting the increase in stock value over time will justify that decision.
One look at Amazon’s growth statistics proves how effective its approach has been. In 2000, the company made a total net revenue of USD $2.7 billion; 20 years later it made $386 billion. It’s hard to argue with that kind of progress.
As an aside, the profitability of Amazon Web Services (AWS) should give income investors some hope. The strong earnings growth of that segment may make Amazon more inclined to pay dividends in due course.
Don’t hold your breath though. The tech world is both competitive and fast-moving, which all but forces Amazon to invest heavily in itself. The likelihood of it falling behind increases with every dollar allocated elsewhere.
For now, the company continues to use its impressive revenues to expand and move aggressively into other industries. It has the groceries market in sight, for instance – acquiring Whole Foods for $13.7 billion in 2017. And it’s even moving into healthcare, having bought the online pharmacy PillPack for $753 million in 2018.
Aggressive spending and market expansion lead to a few key outcomes. They perpetuate company growth, of course, which helps increase demand for shares and thus raises the value of its stock. Unfortunately, they also slash profit margins.
This trifecta of outcomes applies to Amazon more than most. While its revenues have improved year-over-year, its profits have remained minimal until recently. In fact, Amazon operated at a loss up until 2003.
Because public companies pay dividends from their profits rather than their operating income, it’s easier to understand Amazon’s longstanding stance on them. If its profits are negligible or non-existent, there’s no capital left for investors. Alas, the fact it made over $21 billion in profit in 2020 and still refused to pay a dividend is harder to explain away!
Ready to Buy Amazon Stock?
As one of the world’s biggest brands, it’s no wonder so many people look at Amazon as an exciting investment opportunity. Jeff Bezos may no longer be at the helm, but the company shows no sign of slowing down. It generates hundreds of billions of dollars in revenue and expands into exciting new industries every year.
But does Amazon pay dividends? No, it doesn’t. And while there remain plenty of financial incentives to buy AMZN stock, it’s understandable that this puts some people off. We’ll leave it to you to decide the best course of action.
In the meantime, why not check out our other insights on dividend investing? You’ll find a slew of useful resources to help you decide what to buy and what to avoid.
You can also read A Comprehensive Guide to Impact Investing by the same author.
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