Finance & Economics

Alphabet’s Cash Boom Stimulates Dividend Hopes on Wall Street

Alphabet Inc. receives so much cash that against this background, hopes are growing that it will be able to take the page out of the playbook of Meta Platforms Inc. and start paying dividends.

Alphabet’s Cash Boom Stimulates Dividend Hopes on Wall Street

The mentioned firm has been plowing excess cash into share buybacks for many years. Currently, some investors expect that on April 25, when Alphabet releases earnings data, another $70 billion will also be announced as earmarked. Analysts from JPMorgan Chase & Co. and Truist Securities characterize small dividends as a way to further boost the stock price. A similar move by Meta in February contributed to a 20% increase in share cost.

Andrew Zamfotis, portfolio manager at Ami Asset Management Corp., says a dividend from Alphabet would be well received. At the same time, the expert noted that investors still expect growth, which is why cost discipline is currently extremely important. Andrew Zamfotis says that the decision to pay dividends implies that management will try to allocate capital in such a way as to balance its growth and return.

In the so-called theory space, an understanding has been formed that dividends are paid by more mature companies that are on a slow growth trajectory. Currently, such a policy is becoming more common among technology companies. For example, this year Salesforce Inc. and Booking Holdings Inc. announced the payment of dividends. In the United States, among the six largest technology companies by market value, only Alphabet and Inc., which also owns the best American delivery service, have no quarterly payout.

Since the beginning of 2024, Alphabet’s share price has increased by 10%. According to the dynamic of this indicator, the company was ahead of Microsoft Corp. and the Nasdaq 100. Currently, an important and positive factor impacting Alphabet’s share price is the growing optimism about the technology giant’s strategy in the area of generative artificial intelligence. At the same time, the company’s securities fell in cost significantly last month amid a disappointing earnings report and growing concerns that AI tools could weaken the firm’s position in the search advertising sphere.

According to preliminary forecasts, Alphabet’s revenue will grow by 14% in 2024. Cost-cutting efforts are also expected to support profitability. The tech giant’s free cash flow is projected to reach a record $83 billion this year. At the end of 2023, Alphabet had more than $110 billion in cash and cash equivalents.

Tejas Dessai, an analyst at Global X ETFs, says that Google’s parent company is likely to announce a dividend payment in 2024. According to the expert, the current moment is suitable for such a decision, since now there is a favorable state of affairs in the advertising market. Also in favor of the mentioned step are the measures of the technology giant to save money. Investors are positive about the idea of paying dividends.

Alphabet is also currently facing money needs. In this case, first of all, it means solving such a problem as increasing computing capacity using artificial intelligence. Last year, the tech giant’s capital expenditures totaled a record $32 billion. The mentioned indicator is expected to grow by 27% this year. Wall Street analysts say that Alphabet has enough cash to finance infrastructure spending and increase capital return.

Market professionals currently view the payout of dividends by companies as a sign of strength.

Jenny Harrington, chief executive officer of Gilman Hill Asset Management, says that for the corporation, sitting on cash still falls into the category of suboptimal solutions. The expert notes that even if a corporation gets 5% in cash, a credit for the return of funds to shareholders through dividends or the bump from share buyback means that these are the best capital allocation actions.

Serhii Mikhailov

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Serhii’s track record of study and work spans six years at the Faculty of Philology and eight years in the media, during which he has developed a deep understanding of various aspects of the industry and honed his writing skills; his areas of expertise include fintech, payments, cryptocurrency, and financial services, and he is constantly keeping a close eye on the latest developments and innovations in these fields, as he believes that they will have a significant impact on the future direction of the economy as a whole.