Note to Google Inc (GOOGL): It’s time grow up, wear your big-boy pants, and start paying a dividend.
You’re a $374 billion company, for crying out loud, and your biggest rivals—Apple Inc (AAPL) and Microsoft Corporation (MSFT)—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 Google 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, GOOGL, 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, Google.
And let’s not forget about your money in the bank. You have $65 billion in cash just sitting around. That’s about 17% of your entire market cap. Seriously, what are you going to spend it on, driverless cars? Well, your $65 billion in the bank is roughly twice the entire market cap of leading auto innovator Tesla Motors (TSLA). You could buy Tesla outright and still have plenty of cash left over for at least a modest dividend.
What would a Google dividend look like? Let’s take baby steps and start with a 10% dividend payout. You earned $14.5 billion over the trailing twelve months. A $1.5 billion initial annual dividend wouldn’t make a dent in your cash hoard.
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.
I know, I know. It’s hard to admit you’re no longer a Silicon Valley startup. I get it. But you can still let your employees wear togas to work…or sit in beanbag chairs…or whatever it is you free-thinking types do over there.
You’re a big boy now. And it’s time to start paying a dividend like one.
And don’t think I’ve forgotten about you, Facebook Inc. (FB). Yes, GOOGL has been doing this a lot longer and is a more mature company. But you’re a big boy too, and unlike your struggling rival Twitter, Inc (TWTR), you actually have a profitable business model in place. A Facebook dividend would be a very pleasant surprise, and it would assuage investors’ biggest fear: That you are burning far too much of your cash on capital spending with no guarantee of benefit. Your expenses jumped by 83% last quarter.
Hey, I get it. You’re investing in the future, and your revenues are growing at a 40% clip. Companies at this hypergrowth stage can’t be bothered with paying a dividend. But if you did, your investors might be willing to give you the benefit of the doubt and stop complaining about your ballooning expenses. 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 had no position in any security mentioned in this article.
Photo credit: Blue Mountains City Library