Companies have been increasingly generous in distributing a portion of their profits to shareholders over the past year. U.S. companies paid a net $16 billion more in dividends during the second quarter, according to S&P Dow Jones Indices. That was slightly more than the net increase in the first quarter and about four times higher than in the prior-year period.
Many companies contributed to the increase by initiating a dividend or raising their payout. However, two companies stood out as the biggest drivers of the boost in dividend payments last quarter: Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL) and Meta Platforms (NASDAQ: META). Here’s a closer look at these two magnificent dividend stocks.
A monster dividend
Tech titan and “Magnificent Seven” member Alphabet initiated a regular quarterly dividend in late April. It made its first payment of $0.20 per share in mid-June.
Alphabet’s initial dividend seems small relative to its stock price (it currently has a 0.4% dividend yield, well below the S&P 500‘s 1.3% yield). However, it’s massive on an absolute basis. It will cost the company about $10 billion per year. That made it the most meaningful contributor to the second quarter’s increase in dividend payments.
The technology giant can easily afford that monster payment. The company generated $16.8 billion in free cash flow during the first quarter alone. It also had $108 billion of cash and marketable securities on its balance sheet against a mere $13.2 billion of long-term debt. That strong financial position enabled the company to add a whopping $70 billion to its share repurchase program.
Alphabet’s initial dividend is likely only the starting point. Given the company’s financial strength and earnings growth (more than 50% in the first quarter), it should be able to steadily increase its dividend payment in the future.
Another magnificent dividend
Alphabet’s dividend initiation followed in the footsteps of fellow Magnificent Seven member Meta Platforms, which initiated a dividend during the first quarter. The social media giant is paying $0.50 per share each quarter.
Like Alphabet, Meta Platforms’ dividend might seem small at first glance, given its low 0.4% dividend yield. However, its total payments will tally a massive $4.4 billion per year. That’s the second-highest absolute dividend increase this year, more than double the newly minted dividends of Salesforce ($1.5 billion) and Booking Holdings ($1.2 billion). Add that trio to Alphabet’s recently initiated payment, and 53% of this year’s net increase in dividends has come from those four new dividend stocks.
Meta Platforms can also easily afford to pay its mammoth dividend. The company generated $12.5 billion in free cash flow during the first quarter and had $58.1 billion of cash, equivalents, and marketable securities on its balance sheet. The company’s robust financial position is giving it the flexibility to invest heavily in AI while also returning generous amounts of cash to shareholders through its recently initiated dividend and share repurchase program (Meta bought back $14.6 billion in shares during the first quarter while paying about $1.3 billion in dividends).
The company is in an excellent position to increase its dividend in the future. In addition to its strong financial profile, Meta’s earnings are growing briskly (over 110% increase in the first quarter). The company’s heavy investment in AI could drive robust future growth.
Companies are doling out more dividends
Companies in the S&P 500 are on track to pay 6% more in dividends this year. That’s an acceleration from last year’s increase (5.2%), thanks in part to the recently initiated dividends from Magnificent Seven members Meta Platforms and Alphabet.
That upward trend in dividend payments appears likely to continue. Many companies, especially large technology companies, are flush with cash and briskly growing their free cash flow. That puts them in an excellent position to continue lining their investors’ pockets with higher dividend payments. So, if you’re looking to make some extra money, investing in dividend stocks could be your ticket to a steadily rising passive income stream.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Matt DiLallo has positions in Alphabet, Meta Platforms, and Salesforce. The Motley Fool has positions in and recommends Alphabet, Booking Holdings, Meta Platforms, and Salesforce. The Motley Fool has a disclosure policy.
Companies Paid Their Investors $16 Billion More in Dividends Last Quarter. These 2 Magnificent Stocks Helped Drive the Increase. was originally published by The Motley Fool
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