Investing

Yes, Meta Platforms's Recent Dividend Announcement Matters. A Great Deal, Actually.

Chris MacDonald

Published: March 28, 2024 12:30 pm

For most investors, the narrative this year has been mostly growth-focused. Growth investors continue to outperform, with the so-called “Magnificent 7” driving the vast majority of the market’s performance. Indeed, outside these seven unicorns, many value and dividend investors have seen relative underperformance.

For many investors who simply focus on different strategies (such as using equities to create a passive income stream, maybe in combination with fixed-income assets like bonds, or not), it’s been a rough few years. Indeed, the performance of top-tier growth stocks has masked under-performance among many dividend stocks that have much better relative valuations.

And unfortunately, there are a number of reasons why many investors simply can’t justify owning mega-cap tech stocks at current valuations. Much of this has to do less with their valuations, and more with their dividends (or lack thereof).

For individuals focused on dividend income as a core tenet of their portfolio strategy, or institutional money managers with a mandate, some stocks simply can’t be bought on the basis of not paying a dividend.

That’s why Meta Platform’s (NASDAQ: META) recent instatement of a dividend matters.

Meta Platforms – the Dividend Stock Every Investor “Has” to Own?

Source: Derick Hudson / iStock Editorial via Getty Images

Okay, so a $0.50 per quarter dividend ($2 per share annually) is great for mega investors like CEO Mark Zuckerberg (and there’s been plenty of discussion around why this dividend amounts to a $700 million raise for Meta’s head honcho). But for the average investor, a 0.4% dividend yield doesn’t really move the needle.

That’s true. But just as with other key events that invite capital flows into a stock (such as a Dow Jones listing for the likes of Amazon), dividend investors now have a justifiable reason to pile into META stock. This sort of self-fulfilling rationalizing of why investors need to own stocks can lead to continuous momentum that’s hard to stop. And while Meta’s stock price has moved higher since its earnings report and announced dividend (and $50 billion share buyback program, let’s not forget about that), it’s still trading at roughly the same levels. So, maybe the hype is overblown?

In my view, it’s the combination of factors at play with Meta that make it a strong buy right now for so many investors. This is certainly a growth-focused tech stock. It’s a dominant player with a clear competitive advantage (moat) in its core social media business. And it’s a cash flow machine, reinvesting its capital back into its business, and in the form of capital return to shareholders (via buybacks and now dividends).

There’s just not much not to like about Meta right now, and this dividend adds another reason for investors to hit the ask (or at least, not sell quite yet).