Meta Platforms Inc. made a surprising move on Thursday by announcing its first-ever dividend, a decision that is expected to have a significant impact on the tech industry. This dividend declaration is reminiscent of Apple Inc.’s pivotal decision to reinstate its payout over a decade ago and could potentially influence other tech giants.
Starting in March, Meta plans to pay a quarterly dividend of 50 cents per share, putting it alongside Apple and Microsoft Corp. as one of Big Tech’s dividend-paying companies. This strategic move by Chief Executive Mark Zuckerberg may prompt investors to demand similar actions from Alphabet Inc. and Amazon.com Inc., two well-established tech companies that have held out on issuing dividends despite being older than Meta.
Meta’s decision to introduce a dividend could bring even more attention to the stock on Wall Street, particularly from the committee responsible for selecting components for the Dow Jones Industrial Average. While it is no longer mandatory for Dow candidates to pay dividends, doing so would certainly strengthen Meta’s credentials.
Currently, only Salesforce.com Inc. and Boeing Co. do not pay dividends among the existing Dow constituents. Boeing’s dividend and share-buyback program were put on hold in 2020. Ultimately, the index committee has the final say on new entrants into the Dow, but the communications services sector, which includes Meta and Amazon, is underrepresented compared to the S&P 500.
Celebrations as Meta’s Efficiency Pays Off
Investors are rejoicing as Meta shares soar nearly 15% in after-hours trading following Thursday afternoon’s earnings report. The report not only brings exciting news of a dividend but also provides further evidence of Meta’s successful “Year of Efficiency.”
A Balanced Capital-Return Program
During Meta’s call with Wall Street analysts, Chief Financial Officer Susan Li briefly discussed the introduction of the dividend. Li emphasized that the dividend aims to create a more balanced capital-return program for the company while allowing for increased flexibility. It’s worth noting, however, that share repurchases will remain the primary component of Meta’s capital-return program.
Li asserted, “The dividend doesn’t impact the overall amount of capital we return. We anticipate that share repurchases will continue to be the primary means through which we reward our shareholders.”
AI Opportunities and Infrastructure Investment
Meta executives also highlighted the company’s prospects in artificial intelligence during the call. Additionally, they revealed their expectations for significant spending on data-center infrastructure buildouts in 2024.
A New Chapter for Meta
While Meta’s mature approach to shareholder returns may earn it respect from some investors, others may be apprehensive about the implications of becoming a dividend-paying tech giant. With this announcement, Meta solidifies its position as a fully-grown and established company. Investors must now come to terms with both the benefits and changes that accompany this transformation.