Since Google Inc. (GOOG) went public in August of 2004, it has not offered shareholders any dividend payments. Many investors are disappointed with Google’s decision not to offer dividends and share a piece of their monetary success with their investors. This leaves some wondering what the future holds for Google, and if they will ever [...]
Since Google Inc. (GOOG) went public in August of 2004, it has not offered shareholders any dividend payments. Many investors are disappointed with Google’s decision not to offer dividends and share a piece of their monetary success with their investors. This leaves some wondering what the future holds for Google, and if they will ever end up paying a dividend at all.
What Would Make Google Pay A Dividend?
Many companies begin offering dividend payments to their shareholders simply to make their company appear to be a better investment. Offering a dividend allows investors to still have a chance of earning income, even if the stock price stagnates or declines. Dividend stocks can also be attractive to potential investors since it shows that the company is stable enough to offer dividends.
GOOG is a major company with about $10 billion in cash, as well as an additional $12 billion in free cash flow every year. Paying a dividend would not have any major effect on Google’s profits, and would still allow the company to have enough cash to reinvest in the company.
Many other technology companies have begun to offer dividend payments. Most recently, Apple Inc. (AAPL) started paying quarterly dividends of $2.65 in August after the passing of former CEO Steve Jobs. Microsoft (MSFT) has been paying a dividend since 2003, once their company was considered to have a mature corporate culture. Their quarterly dividend payments have gone from 8 cents in 2003 to 23 cents presently. Finally, Accenture (ACN) paid their first annual dividend in 2005, starting out offering 30 cents per share. ACN dividends increased to 81 cents annually by October 2012.
Google has seen successes, but has also had its share of bumps in the road. Although some believe that Google is already an attractive enough investment without offering dividends, the company has seen several product failures as well as increased competition. Additionally, Google’s “do no evil” attitude is making some investors dissatisfied, feeling that Google owes it to their investors to pay a dividend. After all, there’s nothing evil about dividends.
How Big Could Google’s Dividend Be?
Similar to other technology companies, it is essential for Google to put a significant amount of its earnings back into the company in order to reinvest in new income streams. Apple, which was criticized by some for their low quarterly dividend, has a dividend yield of 1.97%, and a payout ratio of about 21%. Microsoft has a current dividend yield of 3.19%, and a payout ratio of 30%. Accenture currently has a dividend yield of 2.46%, with a payout ratio of 86%. Seagate Technology has a dividend yield of 4.32%, with a 26% payout ratio.
There is no way of knowing exactly how big dividend payouts would be if the Google decided to offer dividends, but compared with other industry members, the average dividend yield is around 3%.
What Does Google Not Paying A Dividend Mean to Investors?
It is not unusual for technology companies not to pay dividends. Many tech companies believe that it is a better business strategy to avoid paying dividends, and to use that money to reinvest in the company since the technology industry is constantly changing. Plus, many tech giants are wary of the cyclical nature of their businesses, and are afraid of dividend commitments hanging over their heads should times get tough.
Although many investors would like to see Google start paying dividends, others believe that a technology company paying dividends is a bad sign, meaning that the company does not know what else to do with the money that they are earning. On the contrary, some Google investors believe that they should be receiving dividend payments since paying a dividend would not have a major effect on the company.
The Bottom Line
Google’s stock has been highly successful since it went public in 2004, and the company has has been successful recovering from failed products and acquisitions. As the company plans to continue investing in new technology, the investment is still attractive to investors who aren’t seeking yield in their portfolios. So although there are potential benefits to Google paying dividends, it is ultimately unlikely that Google shareholders will receive dividend payments anytime in the near future.