Alphabet’s Cash Boom Is Raising Dividend Hopes on Wall Street

Alphabet’s Cash Boom Is Raising Dividend Hopes on Wall Street
The Google logo is displayed at Google headquarters on 2 February 2023 in Mountain View, California. (Photo by Justin Sullivan/Getty Images)

Alphabet Inc. is bringing in so much cash that hopes are rising it will take a page out of the Meta Platforms Inc. playbook and start paying a dividend. 

The search giant has been plowing excess cash into share buybacks for years and many investors expect another $70 billion to be earmarked when Alphabet reports earnings on April 25. But analysts from JPMorgan Chase & Co. to Truist Securities are among those that see a small dividend as a way to move the needle further for the stock, similar to Meta’s February move that helped fuel a 20% jump in shares.

“A dividend would be well received,” said Andrew Zamfotis, portfolio manager at Ami Asset Management Corp. “While investors are still looking for growth from these companies, today there is also value in cost discipline and the decision to initiate a dividend suggests that management will be prudent and attempt to allocate capital in a way that balances growth and capital return.”

Alphabet's Free Cash Flow Has Swelled

Dividends have traditionally been seen as the province of more mature and slower-growing companies but the policy has been gaining popularity among tech firms. In addition to Meta, Salesforce Inc. and Booking Holdings Inc. have also initiated dividends in recent months. Among the six biggest US technology companies by market value, Alphabet and Inc. are the only ones that don’t have a quarterly payout.

Alphabet shares are up 10% this year, outperforming Microsoft Corp., as well as the Nasdaq 100. Rising optimism about its generative AI strategy has supported the stock of late, though it fell to a three-month low in March in the wake of a disappointing earnings report and fears that artificial intelligence tools could challenge its dominance in search advertising.

Read More: Alphabet Heads Toward $2 Trillion as Investors Cheer AI Progress

With Alphabet’s revenue expected to rise 14% this year and cost cutting efforts supporting profitability, the company’s free cash flow is projected to hit a record $83 billion in 2024, according to data compiled by Bloomberg. The Google parent also had more than $110 billion in cash and cash equivalents at the end of 2023.

“We think Alphabet is likely to follow Meta’s lead by introducing dividends this year,” said Tejas Dessai, research analyst at Global X ETFs. “Given the favorable advertising market and recent cost-saving measures, now seems opportune for such a move, which has generally been positively received by investors.”

Of course, Alphabet faces other demands for its cash, such as adding AI computing capacity. The company had a record $32 billion in capital expenditures last year and that spending is expected to jump another 27% in 2024, according to data compiled by Bloomberg. However, the feeling on Wall Street is that Alphabet has plenty of cash for infrastructure spending as well as bigger capital returns.

Rather than seeing dividend initiations as a sign that the companies have fewer investment opportunities, market professionals are now viewing it as a sign of strength.

“For corporations, sitting on cash in this environment is still suboptimal” said Jenny Harrington, chief executive officer at Gilman Hill Asset Management. “Even if they’re getting 5% on cash, the credit they get for returning cash to shareholders through dividends, or the bump they get from buybacks, mean that those are better capital allocation decisions.”

Tech Chart of the Day

Nvidia's Biggest Drop Since Covid Onset

Nvidia Corp shares plummeted 10% on Friday, their biggest one-day drop since the start of the pandemic in March 2020, and the stock closed below its 50-day moving average for the first time since November. The slump erased nearly $212 billion off its market capitalization. The move came amid widespread tech selling, with AI companies seeing some of the most pronounced weakness. Shares edged higher on Monday, rising 2.8%.

Top Tech Stories

  • After years of working to assure the US government that its popular social media app isn’t a threat to national security, TikTok’s loss in that fight now seems almost inevitable.
  • Australia is gearing up for a showdown with Elon Musk and US social media giants over allegations they failed to move fast enough to police graphic content and misinformation during two violent attacks in Sydney over the past 10 days.
  • Taiwan Semiconductor Manufacturing Co. options traders are contending with a rising wave of bearishness following the chipmaker’s cautious guidance and concerns about whether the artificial-intelligence trade is unwinding.
  • Apple has long relied on China and the iPhone for growth. As those revenue sources continue to falter, the company must explore new regions and products to get back on track.
  • US Commerce Secretary Gina Raimondo said Huawei Technologies Co.’s latest phone shows that China remains behind on cutting-edge chip technology.


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