Nvidia Raised its Dividend – But There's a Catch

Remember: large dividend increases don't always result in meaningful yields

David Harrell 7 June, 2024 | 9:16AM
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Nvidia

"We are also increasing our dividend by 150%."

Nvidia NVDA has already rocketed to become the world's second-largest company, and is now worth more than $3 trillion (£2 trillion). Now, with an announcement that the firm is raising its dividend so much, is it not also a heavyweight in this investing realm? Not so fast.

Nvidia's yield before its announcement was a teensy 0.02%, and it now stands at 0.03%, based on an annual payout of 4 cents per share. (The company also announced a 10-for-1 stock split effective June 7.) Even a tenfold increase in the company's previous dividend rate would still yield less than Alphabet (GOOGL) or Meta Platforms (META), which both initiated dividends earlier this year. With the new rate effective with the dividend paid June 28, Nvidia’s yield will still round down to 0.0% unless expressed using two decimal places.

Key Morningstar Metrics for Nvidia

• Fair Value Estimate: $1,050.00;
• Morningstar Rating: 3 stars;
• Morningstar Economic Moat Rating: Wide;
• Morningstar Uncertainty Rating: Very High.

At one time, Nvidia provided a thoroughly respectable yield. When the company initiated a dividend in late 2012, its stock yielded north of 2%, well above the broader US stock market and the average yields of its technology peers.

While Nvidia provided modest dividend increases, those raises weren't enough to keep pace with the stock's share price. The forward yield equation is simple: divide the total dividends paid over the next 12 months by the current stock price. In the case of Nvidia, the immense growth of the denominator of this equation was enough to push the yield down from more than 2% to a couple hundredths of a percent.

Looking ahead, Nvidia's yield will probably remain minuscule, barring a major change in management's approach to capital allocation. This means dividend income shouldn't be a factor when evaluating the investment case for owning the stock. As Morningstar equity strategist Brian Colello notes in his analysis, the "dividend is virtually immaterial relative to its financial health and forward prospects, and most of the firm’s distribution to shareholders comes in the form of stock buybacks." Morningstar analysts do not forecast any additional dividend increases from Nvidia before 2030.

David Harrell is editorial director for Morningstar Investment Management

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
NVIDIA Corp117.93 USD-2.61Rating

About Author

David Harrell  David Harrell is the editor of ClearFuture.

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