When it comes to retailing and technology, few stocks have matched the long-term performance of Amazon (AMZN +1.00%). Since its May 1997 debut, the stock has risen by over 251,000%!
Nonetheless, one aspect of Amazon likely remains tremendously frustrating to investors: the lack of a dividend. In an era when "Magnificent Seven" tech stocks such as Alphabet and Meta Platforms finally began paying dividends in 2024, Amazon has stood firmly against it.
Even if this remains a sticking point with some investors, they should probably put that issue aside and own the stock anyway. Here are three reasons.
Image source: The Motley Fool.
1. The company's capital allocation
Most companies tend to pay dividends when reaching maturity. However, one famous exception to this was Warren Buffett's Berkshire Hathaway. Buffett felt he could allocate capital to more-profitable pursuits, and, aside from making one dividend payment in 1967, Berkshire has resisted payouts.
Moreover, Amazon truly needs the capital amid the artificial intelligence (AI) building boom. The company is spending $220 billion on data centers this year, up from the $132 billion in capital expenditures (capex) in 2025.
Consequently, it had a free cash flow outflow of $7.6 billion over the trailing 12 months. That came after it was routinely generating tens of billions in free cash flow annually, suggesting it may not be the best time to pay a dividend.
2. Amazon's growth
Also, as a company matures, growth will often slow as it becomes more cash-rich, and payouts can be a great way to keep long-term investors. Nonetheless, despite its $2.7 trillion market cap, Amazon has not settled into becoming a slow-growth company, and its growth is happening where it can deliver the most benefit.
In the first half of 2026, revenue grew 18% to $382 billion. Its cloud computing arm, Amazon Web Services (AWS), accounted for $79 billion of that revenue, a figure that increased by 33% over the same period.
And AWS provided nearly $31 billion in the company's operating income, or 60% of the total during the same time frame. Such a rate of increase could help justify the aforementioned capex that has strained its financials.
3. Tax advantages
Another financial strain can involve taxes. Investors may not think of taxes as a reason not to pay dividends, but they are a significant factor for shareholders, as valuable capital is often lost to taxation from the shareholder perspective.
Although capital gains taxes can be a huge cost for shareholders, they pay no taxes as long as they don't sell. Conversely, if a company spends its capital on capex or share repurchases, it is treated as an expense, ensuring all available capital is allocated to its stated purposes.
This is also true of the dividend, but only from the company's perspective. Once shareholders receive payments, they pay a tax rate between 0% and 37%, depending on IRS rules.
Knowing that, the company might decide that share repurchases, which are not taxable events, are a better use of the capital. Amazon took this approach for a time, approving a $10 billion buyback in 2022. Still, it did not use the full $10 billion for this purpose, and share counts have consistently risen since that time, indicating it has abandoned that plan in favor of its capex-driven investments.
Amazon and dividends
Given Amazon's history and spending patterns, it is likely a stock worth owning despite not paying a dividend.
Some companies believe they can better allocate capital internally, and given the need to spend on capex, AI is arguably where it needs to devote its capital. That investment has helped spur growth that is unusual for such a huge company, and the lack of a dividend allows investors to benefit from appreciation tax-free.
Ultimately, since its strategy led to a gain of over 251,000% during the lifetime of the consumer discretionary stock, it is difficult to argue with Amazon's decision not to pay a dividend.
