Nvidia (NVDA +1.31%) is known as a growth stock, full stop. There's good reason for that, as its artificial intelligence (AI) chips and platforms are currently dominating a quickly growing market. So why is anyone talking about Nvidia as a dividend-paying stock?
It's because unlike many other high-growth tech companies, Nvidia has been paying a dividend since 2014. Granted, the dividend over that decade didn't contribute much to shareholder returns. After all, Nvidia pays a quarterly dividend of just $0.01 per share. That equates to an annual yield of only 0.03% at its recent share price of about $119.
NASDAQ: NVDA
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But investors should pay attention to it anyway. Management thinks enough of that small dividend to raise it by 150% to coincide with Nvidia's recent 10-for-1 stock split. While that huge dividend boost was mainly done for mechanical reasons to reflect the new, lower price per share resulting from the stock split, it also did double the small yield, too.
Nvidia has room to boost the dividend
That yield could grow to become a meaningful part of a long-term investment in Nvidia. That's because Nvidia's success has juiced its earnings. Compare that current $0.04 annual dividend payment to Nvidia's earnings per share of $17.10 over the last four quarters. That calculates to an almost negligible payout ratio of 0.2%.
That means the company can significantly ramp up that payout to shareholders. While that shouldn't be the focus in the near term, Nvidia already had $21.7 billion in cash and equivalents net of long- and short-term debt as of April 28.
The company reports its next financial update on Aug. 28. That report will likely show Nvidia is still squarely in growth mode. But long-term investors should still keep an eye on the ways management seeks to return its strong earnings to shareholders. And that could include a growing dividend down the road.
