You might have to keep on looking as the Google dividend is nonexistent…
But before everyone gets all up in arms about the fact that Google does not pay shareholders a quarterly dividend, we need to have a full understanding of what a dividend is, why companies give shareholders a dividend, and specifically why companies like Google do not “yet” pay a dividend to shareholders.
Don’t be mad at Google just yet. In fact, after reading this article, we are pretty sure you will be happy without a Google dividend.
What is a Dividend?
For starters, a dividend is a quarterly payment from the company to shareholders. Let’s look at a current example since there is no Google dividend.
Apple has only been paying investors a dividend for the last year or so so we feel like using them as an example might be great throughout this article. Apple came out and said, “Okay shareholders, we are going to pay you a dividend of $2.28 per year for holding our stock.” But what exactly does this mean?
Well for starters, this means Apple will pay $2.28 spread out over four quarterly payments of $0.57 to its shareholders. The shareholder will receive $0.57 per share in their account on the ex-dividend date. Pretty straight forward. Let’s say we have 100 shares of $AAPL, that would mean that every single quarter on the ex-dividend date, we would receive a cash payment into our brokerage account of $57. Hooray! On the morning of the dividend payment, Apple’s stock price will be reduced by $0.57 so that the company can take that amount and pay it out to shareholders.
Why Do Companies Pay a Dividend?
There are a few reasons companies pay a dividend.
Think about this for a second, You are a company like Apple. People are buying shares of your company because they believe it will go higher over time and they will make money. Makes sense.
But what if people stop believing that your stocks will continue to go higher? What do you do?
One of the things that companies can do that is known as financial engineering is to pay a dividend. When a company does not feel it can grow at the same pace if used to or the street has a slightly less positive opinion of it, one of the things it can do it pay a dividend to try to attract a different class of investors.
Before a company begins paying a dividend, there are mostly growth investors in the stock. However, when Apple flipped the switch, it attracted a new breed of investors. It found itself getting bought by the likes of pension funds, retirees, and dividend funds that do not purchase stock unless there is a dividend payment. For short, a company can continue to be popular by attracting the yield chasing investors when they cannot innovate themselves with that money.
Then Why is There No Google Dividend?
We touched on it briefly before. In our above example, we are pretty much saying that with Apple creating a dividend for its shareholders they are saying, “we would rather pay our shareholders to buy the stock and create shareholder value that way rather than reinvesting that money to grow the company.” This is a very bad sign. It is a sign that the company does not believe reinvestment can continue growing the stock price as much as a dividend payment can.
One of the reasons there is no Google dividend is because the company believes it is more valuable and creates more shareholder value to reinvest the cash they have rather than paying a dividend. This is a very GOOD thing.
Think about some of the top growth stocks. When we think about growth stock, a lot of the time the FANG stocks come to mind. In this group, we have Facebook, Amazon, Netflix, and Google. Are any of these four paying a dividend? Absolutely not!
Why not? Because they are taking their profits and reinvesting them back into their core businesses or pursuing additional forms of revenue. These stocks are growing for the future and see the value in reinvestment to gain price appreciation and attract additional shareholders. Because they are growing and continue to be seen so positively by Wall Street, they do not need to resort to a dividend to attract the yield-seeking investors.
No Google Dividend is a Good Thing!
This is absolutely true. The fact that there is no Google dividend is a good thing. It is a sign that Google believes they will create more shareholder value by taking their excess cash and reinvesting it into the company rather than paying people just to be shareholders.
We do not recommend buying stocks for the long run as we believe the buy, hope, and pray model is not sustainable. However, if we HAD to choose stocks for the long-term, we would choose a stock like Google (even though there is no Google dividend) because it is a company that is showing us by their reinvestment actions that they want to continue to grow.
Think about it, we have a choice between the following:
- A company that believes it can grow
- A company that believe it cannot grow
Actions speak louder than words and the lack of a Google dividend is screaming GROWTH.