How Meta got over Silicon Valley’s disdain for dividends
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Meta’s decision to pay its first-ever dividend signals a renewed attempt by Big Tech to satisfy investors, who for years have clamoured over the nearly $500bn cash pile amassed by Silicon Valley’s richest companies.
The parent company of Facebook, Instagram and WhatsApp, which reported fourth-quarter earnings on Thursday, is authorised to return up to $86bn to its shareholders this year alone, with quarterly dividend payouts of 50 cents a share and a $50bn share buyback programme.
Meta is trying to convince Wall Street that years of unproven bets on the metaverse and costly new investments in artificial intelligence will deliver results.
The move also serves as an indication of a maturing corporate culture in Silicon Valley that could show the social media company is more willing to play by Wall Street’s rules. Meta shares rose more than 15 per cent in after-market trading.
The dividend will come on top of the $31bn it has remaining under a repurchase plan announced last year. Mark Zuckerberg, Meta’s chief executive, stands to receive about $175mn in quarterly dividend payments for his 350mn shares in the group.
Big Tech has traditionally avoided paying dividends to shareholders, instead preserving large cash piles that can be reinvested to fund new growth initiatives and protect against disruptive changes in the sector.
When Microsoft started paying a dividend in 2003, it was viewed as a sign that its rapid pace of growth was slowing. Apple and Microsoft have long paid out dividends but Alphabet and Amazon have so far resisted investors’ calls.
Meta’s first dividend, at 50 cents a share, is relatively small, ranking 31st in the S&P 500 by the total amount paid each year. But it signals that the company is committed to returning cash to investors in the longer term.
“It is a coming of age,” said Howard Silverblatt, senior index analyst at S&P, of the dividend announcement. “It is a signal that they feel they have, and will continue to have, expectations of higher cash flow.”
The move hints at Meta’s thinking about its future growth. Shifting political attitudes towards Big Tech mean the company would face serious regulatory opposition if it tried to make a large purchase — its acquisitions of WhatsApp and Instagram are already facing antitrust scrutiny. As a result, it has less need for a large cash balance.
Dividends are seen as a more concrete commitment to shareholders than share buybacks, which can be halted more easily, and they are typically expected to increase in value each year. In periods of economic uncertainty, investors tend to flock towards dividend-paying stocks, which guarantee an income even if prices fall.
Bank of America researchers have predicted that “2024 could be a banner year for dividends”, citing high interest rates and “muddled macro signals”.
Meta’s move is another sign of the powerful increase in cash flow that has led to the dominance of Big Tech companies in the S&P 500, where the Magnificent Seven — a collection of technology stocks including Alphabet, Amazon, Nvidia and Tesla — dominated stock market gains and earnings last year.
With significant cash reserves, pressure has grown for these companies to return funds to shareholders. According to public filings, Apple had $160bn of cash, cash equivalents and marketable securities at the end of December 2023; Alphabet had $111bn; Microsoft had $81bn; Amazon had $74bn; and Meta had $65.4bn.
Microsoft — as the world’s largest company by market capitalisation — is the index’s biggest dividend payer in real terms, handing $22.3bn to shareholders on an annual basis, according to S&P. Apple is the third-largest, paying $14bn. However, Microsoft and Apple have some of the lowest dividend payouts in the S&P 500 compared with their relative weight to the index.
Apple announced a quarterly dividend of 24 cents per share on Thursday. “No one is buying Apple for the dividend yield at this point in time,” said Silverblatt.
Apple stopped paying dividends in 1995, shortly before its co-founder Steve Jobs returned to the company, and started paying them again only in 2012, a year after Jobs died. Jobs had famously refused to pay dividends or buy back shares despite Apple’s cash balance becoming one of the largest in the tech industry, exasperating shareholders.
Meta’s dividend will be welcomed by investors as a further sign that Zuckerberg has retreated from his controversial decision to plough increasingly large amounts of Facebook’s cash into funding his lossmaking pivot to the metaverse — the virtual reality version of today’s internet.
Shareholders vented publicly and in meetings with management as Meta’s stock sank in 2022, and it was briefly removed from the ranks of the 20 largest companies. In a bid to appease Wall Street, Zuckerberg shifted his plans months later, announcing mass lay-offs and declaring 2023 “the year of efficiency”.
“A lot of investors were concerned that the metaverse and AI plans were going to be a sinkhole for money,” said Brian Wieser, principal at advertising consultancy Madison and Wall. “The ‘year of efficiency’ alleviated those concerns and these measures help alleviate those concerns further.”
The decision to begin regular dividend payments comes as Meta faces rising costs to fund an arms race with its Big Tech rivals to develop generative AI products, which require large investments in technical infrastructure such as data centres and servers.
In its results on Thursday, Meta said its capital expenditure for 2024 would be $30bn-$37bn, $2bn more that it had previously guided, in order to fund “ambitious long-term AI research and product development efforts”.
Additional reporting by Michael Acton and Tim Bradshaw
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