News
Big Tech Is Embracing a Trademark of Pre-Internet Stocks
This is the summary of today’s morning summary, which you can sign up to receive in your inbox every morning along with:
A new Big Tech boom has arrived.
Shareholders are not only seeing their share prices rise, they are also getting paid. The dividend, whose importance has been downgraded over the past two decades by the technology boom, is having a moment again thanks in part to the same companies that made it outdated.
In February, META (GOAL) started a dividend and alphabet (GOOG, Google) followed in April. And then it came an increase from Apple (AAPL) last week.
But why are tech companies starting payments and why now?
The dividend trend reflects the dual role that technology giants play in society and on Wall Street. They want to be seen as engines of growth, obsessed with cutting-edge technology and determined to reshape the future. But they are also mature, cash-rich companies, with market capitalizations that start with “T”.
Former upstarts are now apex predators, seasoned with decades of experience balancing new investments with their core business, which is expanding into virtually every domain of life.
Early versions of these companies would scoff at the idea of returning dividends. This suggests that its growth days are behind it and that executives don’t have a vision for how to deploy its resources. But in this post-pandemic, pre-AI moment, Big Tech wants to prove that it can do two things at once: build the infrastructure to dominate the coming era and show investors that they have the fiscal discipline and confidence to return value in a timely manner. consistent.
That the recent wave of dividend announcements has arrived coupled with disclosures of rising AI spending reinforces the double message.
But it also reflects a reenergized corporate America that has shaken off fears of the recession that never existed. Profits are rising and with them are massive share buybacks. The recent wave of buybacks, including Apple’s record $110 billion planIt is the largest sum of buybacks since 2018.
“These companies have been posting record profits for some time now and are finding value in passing those profits on to shareholders rather than investments,” said Alex McGrath, chief investment officer at NorthEnd Private Wealth. “It doesn’t mean they aren’t still investing heavily in growth, but cash flow has now reached a point where this is starting to make sense.”
Payments to shareholders, even modest ones from technology companies, also guarantee them access to funds that require dividends. They are broadening their pool of investors, turning to portfolios looking for stable income from dividends and people who simply want to see the “number go up” in their brokerage accounts.
The story continues
It was the surprising earnings of Internet companies that contributed to making dividends seem boring and old-fashioned. Main members of “Dividend Aristocrats” come from the consumer staples and industrial sectors. When we typically think about dividends, we are disconnected from the ideas of fast growth, more risk and big gains.
But tech mega-companies have changed. And so has what a dividend company looks like. Just look Mark Zuckerberg’s brilliance.
“If they keep the money internally, there is a tendency to waste it. By paying it out, it instills discipline,” said Jennifer Koski, a professor of finance at the University of Washington’s Foster School of Business who teaches dividend cases for large companies. technology since before Microsoft (MSFT) started his own in 2003. “AI spending is the sign that we still have opportunities for growth.”
In a sign of where things are going, Koski is planning to teach his next case on payment policy. This time on Amazon (AMZN).
Hamza Shaban is a Yahoo Finance reporter covering markets and economics. Follow Hamza on Twitter @hshaban.
brief morning image