When dividend investors look for opportunities, they often overlook tech stocks. Tech stocks have historically resisted paying dividends, instead choosing to focus more heavily on growth.
Still, as these companies mature, they often follow the lead of longer-established tech companies such as IBM and Texas Instruments and begin offering a payout. Considering this, it might be beneficial to examine a stock like Google parent Alphabet (GOOGL 0.57%) (GOOG 0.15%), assessing its dividend situation and determining whether it significantly impacts the stock and its investors.
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The Alphabet dividend
The short answer is yes; Alphabet now pays shareholders a dividend.
The company waited until early 2024 to make this move, almost 20 years after going public. It paid its first quarterly dividend, which was then just $0.20 per share, on June 17 of that year. Investors should also note that the payout applies equally to both of its publicly traded tickers.
Despite years of profits and massive growth, the Google parent had long resisted this move. With the $75 billion it pledged to spend on capital expenditures (capex) in 2025, a focus on prioritizing growth over dividends is understandable.
However, that spending did not stop Alphabet from announcing a payout hike this year. On April 24, it took its dividend higher by 5%, raising it to $0.21 per share quarterly, or $0.84 per share on an annual basis.
The payout is unlikely to attract investors by itself. Even after the payout hike, its dividend yield is 0.4%, far below the S&P 500 average of 1.2%. It is also far below what banks pay their depositors, with those interest rates now exceeding 4% in many cases.
Additionally, the company introduced the stock in 2004 at a split-adjusted price of just over $2.12 per share. Thus, even for those who bought at that price and held, those investors will probably not earn more than $2.12 per share in cumulative dividend income until September of next year, and that assumes a $0.01-per-share payout hike in June 2026.
Thus, the dividend likely seems meaningless unless you had bought the stock in its early years of trading.
Alphabet's future prospects
Alphabet has offered no indications that it is going to become a more lucrative income stock, and it has not even pledged a payout hike next year. Still, the company's $95 billion in liquidity and the $67 billion it generated in free cash flow over the last 12 months offer some hope.
As previously mentioned, Alphabet is on track to spend $75 billion on capex this year, likely keeping it relevant in the artificial intelligence (AI) field. Assuming its investments pay off, free cash flows should rise. That should free more capital for dividend payments over time, indicating it will likely become a more lucrative income stock in the future.
Moreover, income investors should not write off the prospects for stock price growth. Many investors began to question Alphabet's lead in AI after the full release of GPT-4 in 2023. However, Alphabet's investments in AI and other areas are winning investor confidence back. With that, the stock outperformed the S&P 500 over the last year.
NASDAQ: GOOGL
Key Data Points
Additionally, Alphabet has arguably become a value stock. It sells at a P/E ratio of 22, well below the S&P 500 average earnings multiple of 30. It also has the lowest P/E ratio among "Magnificent Seven" stocks, making its low valuation all the more appealing to prospective investors.
Alphabet as a dividend stock
After 20 years of declining to offer shareholders a payout, Alphabet is finally a dividend stock.
Unfortunately for shareholders, a 0.4% dividend yield is unlikely to attract investors, with banks and other S&P 500 dividend stocks offering higher returns.
Admittedly, Alphabet continues to shine as a growth stock, and with its market-beating returns and low P/E ratio, it is likely still a worthwhile holding for growth investors. Still, with its cash returns so low, investors focused exclusively on income should probably consider other stocks.
