Published: Feb. 1, 2024 at 6:41 p.m. ET
Meta Platforms Inc. surprised Wall Street on Thursday by announcing its first-ever dividend, a move that’s considered one of Silicon Valley’s most significant dividend decisions since Apple Inc. reinstated its payout over a decade ago. This unexpected move could have an impact on other tech giants. Meta’s plans to pay a 50 cents-a-share quarterly dividend starting in March will place it alongside Apple and Microsoft Corp. as one of Big Tech’s dividend payers. This decision by Chief Executive Mark Zuckerberg may prompt investors to push for similar moves by Alphabet Inc. and Amazon.com Inc., two tech holdouts that predate Meta.
Meta’s dividend plans could also increase its visibility on Wall Street, potentially making it more appealing in the eyes of the committee responsible for choosing components for the Dow Jones Industrial Average. While issuing dividends is no longer a requirement for Dow candidates, it could certainly bolster Meta’s credentials. Notably, within the Dow, only Salesforce.com Inc. and Boeing Co. do not pay dividends; Boeing’s dividend was suspended in 2020 along with its share buyback program. Ultimately, decisions regarding new Dow entrants are at the discretion of the index committee, but the communications services sector, to which Meta and Amazon belong, is underrepresented in the Dow relative to the S&P 500.
Investors have already responded positively to the news, with Meta shares surging nearly 15% in after-hours trading following the Thursday afternoon earnings report, which included the dividend news and further evidence of Meta’s successful “Year of Efficiency”. During Meta’s call with Wall Street analysts, the dividend was only brought up once. Chief Financial Officer Susan Li explained that the dividend adds balance to the company’s capital-return program and provides some additional flexibility. Share repurchases will continue to be the primary component of Meta’s capital-return program.
According to Li, the dividend “doesn’t change the way we determine the total amount of capital we return.” She also stated that “we expect that share repurchases will continue to be the primary way that we return capital to shareholders.” Additionally, Meta executives discussed the company’s prospects in artificial intelligence and its anticipated substantial spending on data-center infrastructure buildouts in 2024.
While Meta’s responsible approach to shareholder returns could earn it more respect from certain investors, it could also raise concerns about the implications of being a dividend payer for a tech powerhouse, suggesting that the company’s high-growth days may be behind it. Meta has now transitioned into a mature company, and investors will need to come to terms with both aspects of this transformation.
