Amazon has grown to overtake other tech stocks like Netflix, yet it does not pay dividends to its shareholders. With the huge cash in-flow, the company has enough money to reinvest in future growth programs, repay its debts, pay dividends, and build its balance sheet.
Call now 1 888-628-5590 or visit InvestmentFraudLawyers.com to schedule a free consultation and learn how our experience can help you recover your investment losses. Over the past decade, several technology companies have initiated dividend payment programs to their shareholders.
Instead of paying dividends, Amazon has been reinvesting its profits back into the business. According to analysts, the stock might perform better if the company adopts the trend of paying dividends.
According to many startups, returning the much-needed capital to shareholders may overexpose the company competition and fail to catch up with its rivals. The strategy has allowed Amazon to take full advantage of the strong periods while at the same time surviving the downturns that proved fatal for many of its competitors.
Amazon ’s decision not to pay dividends has not hurt its point as it has seen continued growth in its stock. The company uses its website to serve the North American and International market segments.
To achieve these growth margins, Amazon spends huge investments in building its retail operations. Due to these large investments, Amazon always collected very little profits for several years.
There are a lot of great dividend-paying stocks out there, but I hate to break it to you -- Amazon (NASDAQ:AMZN) isn't one of them. You might think of that as not being shareholder-friendly, but a company's decision to pay a dividend should come down to whether it has more productive alternative uses for its cash.
It's opening additional fulfillment centers; investing in more video content for Amazon Prime Video; building new data centers for Amazon Web Services; hiring hundreds of thousands of software engineers and fulfillment center personnel; opening new Amazon Go Grocery and Fresh grocery stores; and more. The company is also investing in research and development for things like drone delivery technology, artificial intelligence related to the Amazon Echo and Alexa devices, Amazon Go “just walk out” cashierless retail technology, autonomous car technology with its recent acquisition of Zoo, and countless other areas, many of which we don't even know about yet.
As investors, it's important to evaluate the effectiveness of a company's decisions related to its uses of cash. This is especially true of Foolish long-term investors, because the longer we own a company, the more important management's capital allocation decisions become.
All the earnings and cash flow a company generates over several years may not accrue to shareholders at all if it is squandered on poor acquisitions. Instead of raising additional equity to reinvest, the company has generated cash from its established, profitable “cash cow” businesses and used virtually all of it to reinvest in growth, extensive research and development, the occasional acquisition, and the various new ventures it has started over the years.
As long as those reinvestment opportunities exist, investors should gladly prefer to have the company put that cash to work rather than pay a dividend. Over the past decade, many technology companies such as Apple, Inc. (AAL), Cisco Systems (CSC) and more have initiated dividend payments to shareholders.
One lingering holdout to paying dividends to shareholders is e-commerce giant Amazon .com Inc. (AMZN). Thousands of stockspaydividends to shareholders, and an elite few have maintained long histories of raising their dividends every year.
Amazon is an online retailer that operates a massive e-commerce platform where consumers can buy virtually anything with their computers or smartphones. The North America and International segments include the global retail platform of consumer products through the company’s websites.
Amazon ’s e-commerce operations fueled its massive revenue growth over the past decade. Sales reached $280 billion in 2019, an amazing level of growth over the past decade.
Amazon had to spend huge amounts of money to build its retail operation. Amazon has continued to post impressive growth, even in 2020 when the coronavirus sent the U.S. economy into a recession.
Notably, this guidance assumes -$4 billion worth of costs related to the COVID-19 crisis. Separately, the AWS segment is highly profitable, and is largely the reason for Amazon ’s impressive earnings growth.
Such strong earnings growth improves Amazon ’s chances of paying a dividend at some point in the future. As is typical with many technology companies, growth investment is Amazon ’s top strategic priority.
Things move extremely fast in technology, a highly competitive and cyclical industry. Technology firms need to invest large amounts to stay ahead of the pack.
Now that Amazon dominates retail and media content, it is readying a potential move into the healthcare industry. In 2018, Amazon acquired online pharmacy Pullback for $753 million, likely a precursor to a bigger move into healthcare distribution.
These investments will fuel Amazon ’s revenue growth, which is what the company’s investors are primarily concerned with. Amazon has joined the ranks of profitable tech companies like Apple and Cisco, which generate high earnings-per-share.
In this way, Amazon has climbed ahead of other similar tech stocks like Netflix (NFL), which still does not pay a dividend (and might never) due to a lack of consistent profits. In the past four reported quarters, Amazon generated $24.34 billion of free cash flow, up 6% from the previous 12-month period.
The company could use its free cash flow for a number of purposes, including debt repayment, reinvestment in future growth initiatives, paying dividends, or simply letting the cash build on the balance sheet. It is also a massive cloud services provider, as well as a movie studio and content streaming giant.
For Amazon, the company still has many new avenues for future expansion in mind, including (but not limited to) media content, grocery stores, and health care. As a result, investors should not expect a dividend payment any time soon, despite Amazon ’s rising profitability.
Amazon likely needs little introduction, as Jeff Bezos’ ubiquitous internet commerce company has grown from humble beginnings as an online bookstore to sprawling e-commerce and cloud computing juggernaut in the twenty-plus years since its inception in 1994. In the last ten years, the price of Amazon stock has jumped from below $80 per share precession in July 2008 to over $1,600 today, an increase in the ballpark of 1,900% over that span of time.
Many factors likely influence this surge in valuation over the years, including an ever-growing Amazon Prime subscriber base, a laundry list of active acquisitions, and booming worldwide e-commerce sales growth. Even a small dividend would be enormously costly for the company and would get in the way of other priorities such as paying off debt, investing in ongoing operations, and targeting big-ticket acquisitions like that of Whole Foods Market in 2017.
As a result, it is a good bet to expect Bezos and Amazon to continue relying on constant all-time high stock values to satisfy shareholders in place of attractive dividend yields. In the case of a stock dividend, the company will automatically reimburse the investor with additional shares proportional to the profits earned.
Reinvesting dividends is a great way to generate additional returns without worrying about broker commissions or minimum investment requirements. However, a second stipulation requires that investors have held the share for more than 60 days over a 120-day period, beginning on that stock’s ex-dividend date.
If you think you satisfy the above criteria, the good news is that you most likely will receive a qualified dividend and be taxed at the lower capital gains rate. With a price of over $1,600 for a single share of Amazon at the time of writing this article, no one can blame you for being intimidated by the idea of getting into the action yourself.
This helps to buy new equipment, hire new employees, open new facilities… you get the picture That’s the point where any more investment will give diminishing returns.
But, as is normal with successful companies, they reached the point where they decided to start paying dividends. That’s when Apple started its dividend growth streak.
One day, I bet you and I will be able to enjoy our Amazon dividend, but it still has some growing to do. Plus, there have been several stock splits since then, so the growth is even bigger than what this suggests.
(note: this doesn’t include reinvested dividends, so the result could be so much higher!) Stocks that will grow your money AND pay you dividends every quarter.