Big Tech Enters Dividend Era... Will 'Cash-Rich' Alphabet Also Pay Out This Year?

Dividend Symbolizing Value Stocks
Trend in US Big Tech
Alphabet Like Meta Shows Potential
Strong Cash Generation Ability as Background

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Alphabet (Google's parent company), which is sitting on a massive pile of cash, is expected to follow Meta Platforms (Facebook's parent company) in paying dividends. The advice to U.S. big tech companies?"use dividend payments to expand market dominance"?has become a thing of the past, analysts say. The era of big tech companies paying dividends has arrived.

On the 22nd (local time), Bloomberg cited expert forecasts on Alphabet, reporting that "expectations are rising that Alphabet, which is generating enormous cash flow, will pay dividends." Tejas Desai, an analyst at Global X Funds, said, "Considering steady advertising revenue and cost-cutting measures, Alphabet is likely to introduce dividends this year, similar to Meta Platforms."

Among the six major Nasdaq big tech companies, only Alphabet and Amazon do not pay dividends. Meta Platforms attracted attention after deciding in February to pay a small dividend of 50 cents per share for the first time since its founding, which led to a 20% surge in its stock price. Since then, U.S. tech companies such as Salesforce (cloud computing services) and Booking Holdings (travel platform) have also announced dividend payments one after another.

The fact that Alphabet's cash holdings are at an all-time high is raising expectations for dividend payments. The market expects that Alphabet will use $70 billion for share buybacks in its upcoming first-quarter earnings report scheduled for the 25th. This is because Alphabet's revenue is projected to increase by 14% year-on-year this year, pushing free cash flow to a record high of $83 billion. Once big tech companies secure market dominance, their fixed costs sharply decrease, allowing them to generate more cash compared to industries like manufacturing.

The market has interpreted the dividend decisions of U.S. tech companies as a signal that growth-driven tech stocks have reached their limits. However, recently, regulatory authorities in the U.S. and the European Union (EU) have tightened their scrutiny of big tech mergers and acquisitions (M&A) more than ever, leading to a shift in this trend. Dividend payments by big tech are seen as an indication that they have ample cash for infrastructure investments.

JP Morgan forecasted that if Alphabet confirms dividend payments, its stock price could follow a similar upward trend as Meta Platforms. Jenny Harrington, CEO of Gilman Hill Asset Management, advised, "In the current environment, holding onto cash is not the best strategy for companies. Returning cash to shareholders through dividends is a better capital allocation decision." Andrew Zampotis, portfolio manager at Ami Asset Management, also said, "Today's dividend decisions by big tech are likely to be welcomed by the market."

However, Bloomberg added that Alphabet's increased investment in the artificial intelligence (AI) sector this year could be a variable in the dividend payment decision. According to Bloomberg, Alphabet spent $32 billion last year on expanding AI computing capacity and is expected to increase this spending by 27% this year. In response, some on Wall Street argue that "Alphabet holds enough cash to more than offset increased infrastructure spending such as AI, so additional infrastructure expenditures are unlikely to have a significant impact on the dividend payment decision."