Should Google Be Paying a Dividend?

Should Google (GOOG) be paying a dividend?

BreakingViews raises that question in a piece published today by The Telegraph. The piece notes that Google has $16 billion in cash, and figures the total could be $21 billion by the end of the year. The story asserts that Google simply doesn’t need that much cash to run the business - and that the company is unlikely to an acquisition of the size that would require that much capital. Their conclusion is that Google ought to start paying out a regular dividend.

Let’s do a little math. Google is trading for about $300. Let’s assume they decided to pay a dividend of about 2%; that would be $6 a share, or $1.50 quarterly. With 315 million shares out, that would come to a total payout of just under $2 billion. Google could easily make that kind of payout and still have plenty left to go shopping for startups to buy. And it might attract a group of new investors who prefer to buy dividend-paying stocks.

On the other hand, Google is hardly the only company that is cash-rich but pays no dividend. Apple (AAPL) suspended its dividend policy in 1995, and hasn’t made a payout since. And Cisco (CSCO) CEO John Chambers has repeatedly said the company is likely to eventually pay a dividend, but still seems a lot more interested in buying back stock and making acquisitions.

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Comments

[User 283977:]

I think that would be a very good idea Eric....

Lack of a dividend is one of the reasons I have not expanded my ownership of Google... why should I give them any more of my money when there is little likelihood the stock is going to be growing in this kind of an economic environment. The exact same logic applies to ALL so called "growth" stocks.

Mar 06 07:03 PM

[Mad Hedge F...:]

Yes, they must pay! Google (GOOG) CEO Eric Schmidt says it is obvious that the news is bad and getting worse, that we are not at the bottom yet, and have some quarters to go. Watching traffic it is clear that advertisers are tightening budgets, but the numbers of online advertisers is increasing. The recovery will start first in the US and then spread overseas. However, the company does not expect any fall off in its own revenues. Does Google own the planet, or what?

Mar 06 07:11 PM

[eternitus:]

Stock that never pay dividends are simply pieces of paper (or bits of data)... especially large caps than can't be acquired.

Mar 06 07:48 PM

[PROXIMO:]

If Google pays a dividend, they are married to it. You can't unring a bell. If they decide to pay one now, they better understand it's for keeps, or else potential fallout down the road if they decided to reconsider.

Mar 06 08:27 PM

[Maxe Paul:]

Well as an adsense earner i can say Google are paying me alot less, and hoarding the margin. If they are not paying a dividend then there is no reason to own such an overpriced stock. A company could startup on the internet tommorrow and fast become the new "darling", leaving Google as an unwanted dinosaur.

Mar 07 12:56 AM

[atlasman:]

The currernt market conditions are proving the maxim that cash is king. I would not bet on these guys parting with their hard earned money but instead using like Microsoft as a big insurance policy.

Maxe is correct that Google is one innovation (plus a ton of VC money and some good luck) from obsolescence. I would not bet on them going away, indeed they are one of the few tech companies well prepared to withstand a prolonged recession/depression. The one chink in their armor is that they rely completely on advertisements which we know will continue to decline with the economy. None of the stuff they have built or bought since they rolled out their search engine has contributed in any meaningful way to their bottom line. Keeping their cash is the best way to weather the coming storm.

Mar 07 08:19 AM

[Greener Pas...:]

My thought is that people paying 300 dollars a share for stock are not interested in getting a $6 per year dividend. They want that money going into growth and eventual stock splits.
I'm curious to understand why Google trades at such a high number. (5 times that of Amazon, an order of magnitude higher than MSN...etc etc.)

Mar 07 08:36 AM

[Venetian Poker:]

"The story asserts that Google simply doesn’t need that much cash to run the business - and that the company is unlikely to an acquisition of the size that would require that much capital."

Perhaps the people at Google know more about Google's future plans than someone else's "assertion."

And as someone else said, in the current market, cash is king.

When a company begins to pay a dividend, it's basically saying, "We're running out of opportunities to deploy this capital--either internally or externally--and hit our target ROE."

It could be that paying a dividend might in fact send the wrong message to current shareholders. Perhaps Google has big plans for that $16 billion war chest.

Mar 07 08:52 AM

[coyotebait:]

How much of that $20 Billion may be needed for future acquisition is the issue. With the sheer size and growth potential of the global Internet, at this point no one knows.

That said, corporate management of many companies and their Boards of Directors are raiding their treasuries to enrich themselves with their own versions of "dividending."

The #1 enemy of Wall Street today is top-level management personal greed. And enormous cash reserves give them comfort to know, for them, the candy will never run out. Imho, it is obscene for anyone to make more than $1 Million a year, bonuses not to exceed same. For a company with public shareholders, it is shameful.

...Shareholders foot the bill and tolerate continual perpetual dilution from stock options, in the futile hope of preserving or growing their hard-earned cash, many retirees in dire straits, and we have to dodge hedgefund managers and all manner of short-term sharks in the bargain. And how do we do that from the played out, over-harvested, mushroom bin corporate mangement keeps us in? ...How can a shareholder feel anything but fleeced?

A shout out to Eric for a heads up article.

CHOMPS,

^__^

..

Mar 07 12:37 PM

[Eric Rasbold:]

At 300 a share, they oughtta pay something. Anything. From their perspective, they are sitting in tall cotton and are having no trouble selling the shares at that level so, why bother. The way they are sitting in cash and ripping of the AdSense people, they should show some good will to the investors.

*I do not own 1 single share of those dogs, by the way. And never will. There are way better ad programs coming out right now, I hope Google gets crushed. Their search engine sucks anyway.

Mar 07 01:35 PM