With Google (GOOGL)Victoriaarcade.us) create more cash flowVictoriaarcadeInvestors increasingly hope that the company can learn from Meta (META)VictoriaarcadeUs) strategy to start paying dividends.
Zhitong Financial APP has learned that the search giant has been spending excess cash on share buybacks for years, and many investors expect Google to set aside another $70 billion for buybacks when it reports results on April 25 local time. But analysts from JPMorgan Chase to Truist Securities agree that a small dividend is a way to push the stock higher, similar to Meta's move in February, when the stock rose sharplyVictoriaarcade20%.
Ami Asset Management Corp. Andrew Zamfotis, a portfolio manager, said: "dividends will be welcomed. While investors are still looking for growth in these companies, cost discipline now has value, and the decision to launch a dividend shows that management will proceed cautiously and try to allocate capital in a way that balances growth and return on capital. "
Dividends have traditionally been seen as an area of more mature, slower-growing companies, but the policy is increasingly popular among technology companies. In addition to Meta, CRM.US and Booking Holdings (BKNG.US) have also begun paying dividends in recent months. Of the six largest technology companies in the United States by market capitalization, Google and AMZN.US are the only two that do not pay quarterly dividends.
Google shares are up 10% this year, outperforming MSFT.US (MSFT) and the Nasdaq 100th index. Growing optimism about its generative artificial intelligence strategy has underpinned the stock's performance recently, despite disappointing earnings reports and concerns that artificial intelligence tools could challenge its dominance in search advertising. The stock fell to a three-month low in March.
Google's revenue is expected to grow 14 per cent this year, of which cost-cutting measures will support profitability and the company's free cash flow is expected to reach a record $83 billion in 2024, according to compiled data. By the end of 2023, Google's cash and cash equivalents exceeded $110 billion.
"We think Google may follow the example of Meta and pay dividends this year," said Tejas Dessai, a research analyst at Global X ETFs. Given the favorable advertising market and recent cost-saving measures, now seems to be the right time to take this move, and investors are generally positive about it. "
To be sure, Google also faces other cash needs, such as increasing the computing power of artificial intelligence. The company's capital expenditure reached a record $32 billion last year and is expected to grow by another 27 per cent in 2024, according to compiled data. However, the feeling on Wall Street is that Google has plenty of cash in terms of infrastructure spending and a greater return on capital.
In addition, market professionals no longer see the first dividend as a sign of diminished investment opportunities for these companies, but as a sign of increased strength.
Jenny Harrington, chief executive of Gilman Hill Asset Management, said: "sitting on cash in this environment is still the second best choice for companies. Even if their return on cash is 5 per cent, the credit they get to return cash to shareholders through dividends, or the gains they get from buybacks, means these are better capital allocation decisions. "