How do you attract investors in an environment where it’s generally acknowledged that stocks are sorely overvalued? The one thing investors look for when it comes to added value is stocks that provide dividends. One of the most popular, Exxon Mobil Corporation (NYSE/XOM), pays out an annual dividend of 3.5%. Wall Street juggernaut Google, Inc. (NASDAQ/GOOG), on the other hand, does not. But with investors looking for a payout, can a dividend be too far behind? Like Exxon Mobil Corporation, will Google Inc. be the next big dividend stock?
This is Why Investors Love Exxon
When it comes to investing, the proof is in the capital appreciation and dividends. Few are as juicy as Exxon Mobil. Not only does the company have a long-term history of providing investors with strong capital appreciation, it is also one of the best dividend stocks out there.
The company has not missed paying a dividend since 1911, and currently pays investors an annual dividend of 3.5% or $2.92 per share. The company has also raised its annual dividend for 33 consecutive years. On top of that, Exxon Mobil’s dividend payments to shareholders have grown at an average annual rate of 6.4% over the last 32 years. (Source: ExxonMobile.com, last accessed June 15, 2015.)
Between 2004 and 2014, Exxon’s share price climbed more than 180%; over the same time its annual dividend yield soared approximately 155%. More recently, since the markets bottomed in March 2009, Exxon’s quarterly dividend is up roughly 73% at $0.73 per share. Meanwhile, the company’s share price is up 58%. (Source: NASDAQ.com, last accessed June 15, 2015.)
How has the company fared since the price of oil started to tank last June? Over the last year, Exxon’s share price has slipped 14% while its quarterly dividend is up 5.7%.
With interest rates hovering near zero, Exxon Mobil’s annual dividend rate and capital appreciation have made it a top choice for income-starved investors.
Will Google Be the Next Big Dividend Stock?
Tech companies are not known for being generous when it comes to dividends. In fact, they’re known for being downright stingy. Apple Inc. (NASDAQ/AAPL) went public in 1984 and could become the first trillion-dollar publicly traded company.
The cash flush company reintroduced its annual dividend in 2012 after a seven-year hiatus. Admittedly, at 1.65% or $2.08 per share, it’s pretty low—but it’s a start. And Apple appears committed to joining the ranks of those reliable companies that consistently raise their annual dividends. (Source: Apple.com, last accessed June 15, 2015.)
How long until Google follows suit? The company’s share price hasn’t exactly been the model of growth. Seeing the hordes of cash, investors might just want the company to add a little extra value to the mix.
What has Google done for shareholders as of late? Not much. The company’s share price has been flat since the beginning of 2015; down roughly four percent year-over-year; and down approximately seven percent over its IPO price.
Google does have more than $64.0 billion in cash, though. And it is far more than just the world’s biggest search engine. Its smartphones, tablets, and other tech products compete with Apple and even Microsoft. It also owns YouTube, the third most popular website behind Google (#1) and Facebook (#2).
Google is also developing a driverless car and Google Glass. While Google X, the tech world’s answer to Area 51, is home to the company’s secretive science fiction research lab.
Exxon and Google by the Numbers
That said, investors want more when it comes to the diversified, cash-rich company. And when compared side-by-side with Exxon, Google looks penny-pinching. Exxon has a market cap of $350 billion, $5.1 billion in cash, $32.77 billion in debt, and provides an annual dividend of 3.5%. (Source: Yahoo.com, last accessed June 15, 2015.)
Google, on the other hand, has a market cap of $360 billion, has $64.6 billion in cash, $6.9 billion in long-term debt, and provides no dividend. It’s also hard pressed to provide investors with capital appreciation. (Source: Yahoo.com, last accessed June 15, 2015.)
Yes, there is more to the company’s underlying business than these basic numbers. But when it comes right down to it, investors don’t care about the economic equations or how much it spends on research and development. They look at the basic numbers and want to see results. And a dividend would certainly help carry investors through periods of uncertainty.
Yes, Google will eventually start to pay out an annual dividend. The question is, when? No doubt, it will be later rather than sooner. Google might be one of the world’s biggest publicly-traded companies and the world’s third most valuable brand, but that hasn’t translated into shareholder value. (Source: Forbes.com, last accessed June 15, 2015.) And the company doesn’t seem to be in any rush to hand cash back to investors in the form of a dividend.
Will Google be the next big dividend stock? Probably not. And when it does finally start to pay one, it will have a long, long way to go to compete with a dividend behemoth like Exxon.