eBay (NASDAQ:EBAY) just posted its fourth-quarter and full-year results. Revenue from the period rose 6% year over year to $2.9 billion while non-GAAP EPS rose 20% to $0.71. The company's revenue was about in line with the consensus analyst estimate for the metric and non-GAAP EPS came in $0.03 ahead of expectations. Active buyers also notably increased 4% year over year.

But the biggest takeaway from the quarter was likely eBay's announcement of its new dividend. The company will pay its first-ever dividend in March, and management plans to keep paying one every quarter. The decision to return capital to shareholders through a meaningful dividend highlights the company's strong cash flow and its stability as an established online marketplace.

eBay offices in San Jose, California, on a bright, sunny day.

Image source: eBay.https://www.ebayinc.com/stories/press-room/#assets-campus-photos

The facts

Beginning "on or about" March 20, eBay will pay a dividend of $0.14 per share to shareholders of record as of market close on March 1, the company said in its fourth-quarter update. On an annualized basis, this quarterly dividend translates to $0.56 worth of dividends per share, giving eBay a dividend yield of 1.7%. This compares with an average dividend yield of 2% for stocks in the S&P 500. 

Along with its announcement of a dividend, management said it is expanding its total share repurchase authorization by $4 billion, highlighting management's efforts to return capital to shareholders through both dividends and stock buybacks. Between continued share repurchases and dividends, eBay said it expects to return about $5.5 billion to shareholders in 2019 and a total of $7 billion over the next two years.

"We are confident in the strength of our business and future growth prospects, as demonstrated by our decision to institute eBay's first-ever dividend and increase our share repurchase program," said eBay CEO Devin Wenig in the company's fourth-quarter earnings release.

Is this dividend sustainable?

With $0.56 in annual per-share dividends translating to approximately $532 million in annualized dividend payments, eBay can easily afford its new dividend. eBay's non-GAAP net income in 2018 and 2017 was $2.3 billion and $2.2 billion, respectively. In addition, eBay generated $2 billion of free cash flow in 2018, with $1.1 billion of free cash flow during the fourth quarter of 2018 alone.

Given how conservative eBay's commitment to dividend payments is relative to its free cash flow, it wouldn't be surprising to see eBay increase its dividend next year. Indeed, when also considering the company's meaningful top- and bottom-line momentum, the company may very well adopt a capital-return strategy of increasing its dividend every year.

Check out the latest eBay earnings call transcript.

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