Meta Platforms, Inc. (NASDAQ:META) announced on Thursday its initiation of a quarterly cash dividend, with a maiden dividend of 50 cents per share scheduled to be paid on March 26 to Class A and Class B shareholders of record as of Feb. 22. This declaration contributed to a 15% surge in Meta shares during after-hours trading.
What’s Behind The Dividend? The decision to offer a dividend comes nearly 12 years after Meta, previously known as Facebook, conducted its initial public offering on May 18, 2012, at a price of $18 per share.
A dividend, being an optional shareholder return, is at the discretion of the company’s board. It represents a fixed payment distributed to shareholders in proportion to their shareholdings, excluding loss-making companies.
Typically, companies pay dividends to attract income-oriented investors seeking a stable income stream to navigate stock market uncertainties. However, growth-focused investors often favor companies that reinvest profits into promising projects for better long-term growth. Tech companies, particularly those in high-growth sectors, often refrain from paying dividends based on this rationale.
Analyzing the reasons behind Meta’s dividend decision, Future Fund‘s Gary Black noted that the company closed the quarter with $64.5 billion in cash and generated $43 billion in free cash flow in 2023. He estimated that a $2 per share dividend would consume approximately $5 billion annually from its cash reserves. Black compared Meta’s revenue growth to Tesla, Inc. (NASDAQ:TSLA), pointing out that Meta’s 2024 guidance of 25%-34% growth exceeded the consensus estimate of 18%-20%, while Tesla was forecasted for over 16% growth.
Black stated, “META’s $43B in FY’23 FCF and $65B cash position convinced the $META Board to initiate a $2/share dividend and add $50B to the buyback.”
In addition to the dividend announcement, Meta revealed a new repurchase authorization of $50 billion in shares, supplementing the $30.93 billion pending from a prior authorization.
See Also: Best High Dividend Paying Stocks
‘Mag 7’ Dividend Payers & Hold-Outs: Meta now joins the ranks of “Magnificent 7” counterparts, such as Apple, Inc. (NASDAQ:AAPL), Nvidia Corp. (NASDAQ:NVDA), and Microsoft Corp. (NASDAQ:MSFT), in adopting a dividend…
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