Google is about to pay dividends to its shareholders. Is this a bad thing for the Alphabet share price and future growth of the company?
From the perspective of growth shareholders, this may not be such a bad thing. For one, the Google is not borrowing heavily to pay this cash disbursement. Two, these dividends are in addition to the massive share buyback that was announced at the same time. In other words;
Google is making so much profit that it is showering its shareholders with all the available financial goodies.
Some may argue that dividends are a sign that Google is not growing as fast as before and its capital needs have dropped – to the point where it is better to return the money to shareholders than deploying them to newer businesses.
True, but one also has to think about this. Google is already one of the most profitable corporations in the world. Its market cap is amongst the largest (nearly $2 trillion). There is a (natural) limit to how much larger Google can become. No company can remain a hyper-growth stock for more than three decades. Therefore, dividends are a natural progression of Google’s transition into a more mature business.
Google releases market-beating earnings results
Few large commercial enterprises are growing like the Magnificent Seven. These seven stunning tickers are: MSFT, NVDA, AAPL, AMZN, GOOG, META, TSLA. Being inside the ‘Trillion Dollar’ club is no longer sufficient. Seemingly a company needs to exude financial magnificence too. The smallest of the lot is currently Tesla, worth ‘only’ $550 billion.
On Thursday, Google (GOOGL) stunned the market with its post-market quarterly results. In just three months, Google generated a revenue of $80 billion dollars – a gain of 15 percent over the previous year. Net earnings came in at an impressive $23.6 billion. That’s about $7 billion every month (see below). Few companies in the world can surpass Google’s magnificent cash machine.
Source: Alphabet Inc (2024)
And so profitable is Google’s operation that the company authorised another stock repurchase program up to $70 billion. This follows Meta’s monstrous $50 billion additional stock buyback earlier. And like Meta, Google is announcing a dividend of $0.20 per share going forward, starting this June.
All these market-beating results have propelled Google’s share price to new all-time highs. Post-market trading saw its share price hit as high as $176 per share, valuing the company above $2 trillion. Technically Google’s uptrend from $90 is accelerating. But how long will this lucrative phase last is hard to pinpoint.
Is Google a good bet on AI?
One phrase that kept appearing on Google results was Artificial Intelligence (AI). The search company is pivoting decisively to AI, as the CEO Sundar Pichai remarked in the latest results: “Our leadership in AI research and infrastructure, and our global product footprint, position us well for the next wave of AI innovation.”
- Related Guide: How to invest in AI Stocks
Google recently introduced Gemini (gemini.google.com) to compete with the popular ChatGPT. Many tech players are already jostling to gain leadership in the next wave of AI generative sphere. For now, Google is spending billions on new programs to capture a new slice of business.
But the bulk of Google’s profits right now are still derived from its search and YouTube businesses. Cash flow in newer AI programs remains in the red. If you’re looking for a ‘pure play’ on AI, then Google is not exactly the most fitting candidate. However, it is likely to be a leader in the sector. Why? Data. Searched data is crucial in developing generative AI (for training purposes) and these data flow naturally from the firm’s current businesses. Google’s AI program will thus capture a slice of the industry.
Jackson is a core part of the editorial team at GoodMoneyGuide.com.
With over 15 years industry experience as a financial analyst, he brings a wealth of knowledge and expertise to our content and readers.
Previously Jackson was the director of Stockcube Research as Head of Investors Intelligence. This pivotal role involved providing market timing advice and research to some of the world’s largest institutions and hedge funds.
Jackson brings a huge amount of expertise in areas as diverse as global macroeconomic investment strategy, statistical backtesting, asset allocation, and cross-asset research.
Jackson has a PhD in Finance from Durham University and has authored nearly 200 articles for GoodMoneyGuide.com.
