Key Points:
- Amazon faces pressure to consider offering a dividend as it remains one of the few major tech companies that does not pay regular dividends.
- Recent dividend initiations by Google and Meta have highlighted Amazon’s divergence from its Big Tech peers.
- Actively managed funds and individual investors may show immediate interest in companies announcing dividend payouts.
- Amazon’s upcoming quarterly results may provide insights into its stance on dividends and potential future dividend strategy.
As one of the few massive U.S. technology and growth companies not offering regular payouts to shareholders, e-commerce giant Amazon.com (AMZN.O) faces increasing pressure to consider a dividend. Recent moves by market heavyweights like Google parent Alphabet (GOOGL.O) and Meta Platforms (META.O) to initiate dividends have intensified the spotlight on Amazon’s dividend policy, leaving it and Tesla (TSLA.O) as the only outliers in the group.
The trend of offering dividends among the so-called Magnificent Seven group of tech companies has gained momentum, with Microsoft (MSFT.O), Apple (AAPL.O), and Nvidia (NVDA.O) having long-established dividend programs. Google and Meta’s recent announcements were followed by significant post-earnings gains in their shares, reflecting investors’ positive reactions to the dividend initiatives.
Nicholas Colas, the co-founder of DataTrek Research, notes that dividends are seen as representations of earnings power, and Amazon now finds itself isolated compared to its Big Tech peers in this regard. David Katz, chief investment officer of Matrix Asset Advisors, suggests that Amazon could feel compelled to follow suit given the actions of its peer group, potentially broadening its shareholder base over time.
While corporate profits remain crucial in driving share prices, dividends can attract income-seeking investors. However, some investors may be deterred by the relatively low yields of tech companies like Google and Meta compared to higher-yielding stocks like Pfizer (PFE.N) and 3M (MMM.N).
Morningstar analyst Daniel Sotiroff explains that dividend-focused funds may prioritize stocks with higher yields or a history of consistent dividend increases, which companies like Meta and Alphabet lack as new dividend initiators. Nevertheless, Apple’s inclusion in dividend-focused ETFs suggests a potential avenue for Amazon to attract dividend-focused investors.
Sotiroff also highlights the potential appeal of dividend announcements for actively managed funds and individual investors, who may be more inclined to invest in companies offering dividends. As Amazon reports quarterly results, analysts and investors will watch closely for any indications of a company’s dividend strategy shift.
