Perhaps a Facebook Inc. (NASDAQ:FB) Dividend is on the Horizon
Facebook Inc. (NASDAQ:FB) is undoubtedly the fastest-growing social media company of this decade. The FB stock has likewise been a success story, having considerably recovered from its beaten down valuation in the post-IPO days. The stock is up over 142% in just three years, with the company’s annual earnings up 38%. Facebook has been posting some strong growth figures with supporting financials, courtesy of FB management’s well-calculated strategic moves in the social media and internet services space.
Which brings us to the question posed in our headline; should CEO Mark Zuckerberg now consider rewarding investors with dividends? It is often argued that the company is in a growth phase and needs to reinvest retained earnings to fuel growth. But we’ve seen examples of tech giants like Apple Inc. (NASDAQ:AAPL) that are likewise growing and at the same time returning value to investors. Apple’s dividends have kept value investors loyal to the stock even through turbulent times when short-selling picked up pace.
Apple’s year-over-year revenue growth stands at 32.5% with Facebook’s at 38.9%. The difference is not very significant, though we must agree that Facebook’s earnings are expected to grow at a higher rate than Apple’s in the coming years.
As of the latest annual filings, Facebook has more cash and equivalents to pay off; not just its current liabilities, but all of its liabilities in totality and still be left with $227,000 on hand. The company currently boasts a current ratio of over nine and very little long-term debt; these are some extremely impressive liquidity figures.
Here’s Why Facebook Stockholders Deserve a Dividend
If we assume a 25% payout with the rest of the 75% earnings being reinvested, the company would roughly be paying $141 million quarterly or $565 million annually.
|Latest Quarter Diluted EPS||
|Dividend Payout Ratio||25% (assumed)||28.65%|
|Dividend Payment||$0.0625/share or 141.25M (assumed)||$0.53/share or $3.02B|
The company is currently sitting on $5.12 billion cash and the fiscal year is not even over yet. The company has been roughly adding a billion dollars in cash every year since its IPO. Retrospectively, even if the company had paid out half of the cash earnings in dividends, the cash reserve would’ve still kept on building at an average rate of 15% annually.
|Cash & Equivalents||$5.12B||$4.31B||$3.32B||$2.38B|
|Free Cash Flows||$3.31B||$3.63B||$2.86B||$0.38B|
We are seeing a growing influx of baby boomers in the retirement market as millennials see their parents exit the job market. With yields stuck at the current low rates, investors, especially retirees, are seeking investment avenues that can generate a yield higher than bonds to protect their retirement portfolios. However, the market volatility is leaving many with little choice but to liquidate their investments and switch to cash.
The evident lack of faith in the markets raises concerns for businesses of whether investors will stick around amid a market crash. But a struggling stock does not necessarily mean a struggling company. When the selling frenzy kicks in, the stocks most likely to suffer are the ones offering the least long-term value. In the event of a stock market crash, dividend stocks must typically outperform non-dividend-paying stocks because of the perceived stability associated with the periodic incoming proceeds.
Here’s the Bottom Line on a Facebook Stock Dividend
Stockholders to Mark Zuckerberg: let’s get a dividend going. A promising growth company like Facebook should definitely consider paying dividends in an effort to entice investors to stay loyal with the stock, should the much-dreaded outcome occur.