Meta's First Dividend Explained

First payout pleased investors but the yield is small and Meta will remain focused on share buybacks

David Harrell 5 February, 2024 | 10:49AM
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Meta Platforms (META) has returned billions in cash to its shareholders via share repurchases. But last week the company made the unexpected announcement that it was initiating a quarterly dividend payment. Shareholders of record on February 22 will be paid a $0.50 per share dividend on March 26.

Morningstar stock analysts welcomed this news, with senior equity analyst Ali Mogharabi writing, “We also commend Meta for instituting a dividend alongside share buybacks.”

The combination of the dividend news and the overall tenor of the earnings report sent Meta’s stock soaring on Friday. Its shares rose 20.3% to a new record high of $474.87.

Meta to Stay Focused on Stock Buybacks

However, buybacks will remain the primary mechanism by which Meta returns cash to shareholders. The firm’s repurchases from 2021-23 totaled $92.3 billion (£73.2 billion), and Morningstar analysts note that it “had $81 billion authorized for additional repurchases as of the end of 2023.” The newly announced dividend represents a payout of approximately $5.3 billion for 2024.

During the earnings call, when asked about the company’s thought process around initiating a dividend, CFO Susan Li said that “returning capital to shareholders remains an important priority for us, and we believe introducing a dividend just serves as a nice complement to the existing share repurchase program."

"The dividend doesn’t change ... the way we determine the total amount of capital we return, and we expect that share repurchases will continue to be the primary way we return capital to shareholders. But introducing a dividend just gives us a more balanced capital return program and some added flexibility in how we return capital in the future.”

How Much Will Meta’s Dividend Be?

The initial annual dividend rate of $2 per share equates to an 11.1% payout ratio and translates into a forward yield of less than 0.5% as of the recent closing price.

To place that figure in context, it’s slightly less than the yields of Meta’s mega-cap growth peers Apple and Microsoft, which currently yield 0.5% and 0.7%, respectively. Meanwhile, the Morningstar Dividend Composite Index has a yield of 3.17%.

Based on Morningstar equity analysts’ earnings forecasts, that annual rate would increase to $3.18 per share by 2028. Yet even if Meta’s stock price doesn’t increase over the next four years, its dividend yield would remain less than 1%, far below the yield most income-focused investors seek.

 

 

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Meta Platforms Inc Class A471.91 USD-0.28Rating

About Author

David Harrell  David Harrell is the editor of ClearFuture.

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