Many technology companies pay stock dividends, or regular cash distributions from earnings, to their shareholders. Alphabet (GOOGL), the parent company of Google, isn't one of them—despite pressure from investors and industry experts to pay them.
A dividend payment is seen as a clear sign that a company is doing well financially. To put it bluntly, the company has excess cash to distribute.
Historically, dividends were the main reason investors bought stocks. The stock represented an ownership stake in the company and the dividends were the owners' share of the profits.
Generally, companies that pay consistent dividends tend to show stable financial performance and a steady flow of revenue. Both the promise of a payout and the perceived stability of the company can attract more investors, which in turn causes the price to rise.
The Downside of Dividends
On the opposite end of the discussion is the dividend irrelevance theory. This is based on a belief that the offer and payment of dividends should not impact the price of a company's stock. People who stand by this theory note that investors can sell some of their equities if they need cash.
Proponents of Google's parent company paying dividends argue that the company can do so without affecting its financial stability and that it may only contribute to its performance.
Alphabet reported revenue of $46 billion for the fourth quarter of 2019, up 17% from its revenue one year previously. Total revenue for the fiscal year added up to $160.7 billion.
Why Alphabet Doesn't Want to Pay Dividends
Alphabet's financial performance clearly shows that it's capable of paying dividends to stockholders. The question then becomes: Why doesn't Google's parent company want to pay dividends? The answer may be found in Alphabet's mission statement. It begins:
As Sergey and I wrote in the original founders letter 11 years ago, “Google is not a conventional company. We do not intend to become one.” As part of that, we also said that you could expect us to make “smaller bets in areas that might seem very speculative or even strange when compared to our current businesses.” From the start, we’ve always strived to do more, and to do important and meaningful things with the resources we have.
At the core of what Alphabet does is constant evolution and expansion into new ventures. This is most apparent in its Google X division, what the company calls its Moonshot Factory. By January 2019, Google X projects that were in development included self-driving cars, balloons to beam internet service into remote areas, kites that generate electricity, and much more.
Some argue that rather than pay dividends, the company needs to reinvest its money to fund these types of projects and ensure the company's long-term evolution and growth.
Other Big Tech Companies That Pay Dividends
Many big companies in the technology industry pay dividends to stockholders. Here are some of them and their dividend yields, as of March 20, 2020:
- Apple Inc. (AAPL): 1.25%
- Cisco Systems, Inc. (CSCO): 3.77%
- Intel Corp. (INTC): 2.77%
- International Business Machines Corp. (IBM): 6.26%
- Microsoft (MSFT): 1.45%
- Oracle (ORCL): 2.03
A Dividend in the Future?
Because of its mission to be different than conventional companies, it's very unlikely that Google's parent company will cave and pay dividends just because its competitors do. But you never know—people once thought that Apple would never pay a dividend.