Note to Alphabet (GOOGL)… or Google… or whatever you choose to call yourself these days: It’s time grow up, wear your big-boy pants, and start paying a dividend.
You’re a $500 billion company, for crying out loud, and your biggest rivals — Apple and Microsoft — are among the most generous dividend payers and dividend raisers in the world. For a company that used to pride itself on its “Don’t be evil” motto, your stinginess to your long-suffering shareholders seems a little…well…evil.
Is a dividend really too much to ask? Let’s look at the numbers. Companies with consistent and reliable cash flows make the best dividend payers. Remember, investors who buy for dividends tend to be conservative. They hate surprises, and lumpy earnings make for an erratic dividend.
So, Alphabet, how do your earnings stack up?
Pretty well, actually. Over the past ten years, earnings per share have grown at a nice clip with no real interruptions. Free cash flow per share, which is the more appropriate measure for gauging cash available to be paid as a dividend, has been a little lumpier as capital expenditures vary a little from year to year. But overall, you are a case study in a steadily growing business, Alphabet.
And let’s not forget about your money in the bank. You have $73 billion in cash just sitting around. That’s about 14% of your entire market cap. Seriously, what are you going to spend it on, driverless cars? Well, your $73 billion in the bank is nearly three times the entire market cap of leading auto innovator Tesla Motors. You could buy Tesla outright and still have plenty of cash left over for at least a modest dividend.
Yes, you gave us investors hope by announcing a $5 billion share buyback. And really, thanks. Much obliged. But that’s just not going to cut it. There is no precise timeline on the share repurchase, and even if you were to make the entire purchase tomorrow, what would it accomplish? That’s not even 1% of your market cap. That felt like more of a condescending pat on the head than a real effort at shareholder friendliness.
So, what would an Alphabet dividend look like? Let’s take baby steps and start with a 10% dividend payout. You earned $5.1 billion this past quarter. $2 billion initial annual dividend (or $500 million quarterly) wouldn’t make a dent in your cash hoard, and it would go a long way towards making your shareholders feel warm, fuzzy and generally cared about.
And don’t think that paying a dividend will completely negate your ability to throw money away on silly acquisitions that add no value to shareholders. Being a generous dividend payer certainly didn’t keep Microsoft from blowing $2.5 billion buying the maker of Minecraft last year… which is the corporate equivalent of a child blowing his weekly allowance on gummy bears.
I know, I know. It’s hard to admit you’re no longer a Silicon Valley startup. I get it. Growing up and being an adult is hard. But you can still let your employees wear togas to work…or sit in beanbag chairs…or whatever it is you free-thinking tech geniuses do over there.
You’re a big boy now. And it’s time to start paying a dividend like one. A dividend would symbolize that you’re a mature company and one that can be trusted to manage shareholder money responsibly.
Charles Lewis Sizemore, CFA, is chief investment officer of the investment firm Sizemore Capital Management and the author of the Sizemore Insights blog. As of this writing he was long AAPL and MSFT.
Photo credit: Harald Groven