Alphabet’s New Dividend: What Investors Need to Know

Meta Platforms META made headlines in early February with the unexpected announcement that it was initiating a regular quarterly dividend. Now Alphabet GOOG/GOOGL, in conjunction with its first-quarter earnings release on April 25, said it is initiating a quarterly dividend for all its share classes. Shareholders on record as of June 10 will be paid a dividend of $0.20 per share on June 17.

Key Morningstar Metrics for Alphabet

• Fair Value Estimate: $171.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Wide
• Fair Value Uncertainty: High

To quote baseball great Yogi Berra, it’s déjà vu all over again. As with Meta, a mega-cap growth firm that has returned cash to shareholders via share repurchases will now return cash via a regular dividend as well. But the initial yield will be modest.

At current share prices, Alphabet shares will yield approximately 0.5%, in line with Meta’s current yield. This is far less than Alphabet’s buyback yield, which has averaged 2.4% a year over the past five years. The new annual dividend rate of $0.80 will total around $10 billion annually, while Alphabet also authorized $70 billion of share repurchases. It thus seems likely that repurchases will outweigh dividends in the near term.

However, based on Morningstar equity analysts’ earnings forecast for the full year, the new dividend rate represents just 12% of earnings per share. Alphabet’s management would have substantial room for future dividend increases if it allocates additional capital to the dividend.

With Alphabet’s move, eight of the 10 largest US companies by market capitalization now pay a quarterly dividend. The best-yielding stock in this group is Broadcom AVGO, which yields 1.6%. Meanwhile, Nvidia’s NVDA dividend remains minuscule, yielding just 0.02%. Amazon.com AMZN and Berkshire Hathaway BRK.B are the cohort’s only non-dividend-paying stocks.