However, other businesses do not now pay dividends and may not do so for an extended period of time in the future (or ever). In the early stages of a company’s development, reinvesting extra cash rather than returning it to shareholders is common. Since each dividend paid out reduces the amount of capital available for expansion, every dollar paid out represents a loss.
A excellent example of this is Netflix (NFLX), which has not paid a dividend since it went public in May 2002. Non-dividend-paying stocks aren’t necessarily a bad investment. Netflix, for example, is a great option for investors who are looking for long-term returns rather than short-term dividends. Over the past five years, Netflix stock has delivered annualized returns of 43%, a substantial return for investors who invested during that time period.
Over the past decade, many tech stocks have started paying dividends as they have matured and started generating substantial profits. Investors might ask if Netflix will ever pay a dividend.
Business Overview
Netflix is a media behemoth with more than 200 million subscribers in more than 190 countries. While Netflix provides a vast selection of second-run television shows and movies, the firm also creates its own original material.
Subscribers received DVDs in the mail while the company got its feet wet. Its focus has turned in recent years to online streaming services. With Netflix, you can watch a wide variety of TV shows, documentaries, and feature films from all around the world. In addition, Netflix has invested extensively in original content creation, which has been crucial to the company’s rapid membership growth.
As a result, revenue has grown enormously over time. Revenue at Netflix nearly tripled between 2016 and 2020, reaching $25 billion in 2017. In recent years, membership growth has slowed significantly, but this is to be expected after such a long time outsized growth has been experienced.
By 2020, earnings per share are expected to rise from $0.43 in 2016. Investors might expect Netflix to contemplate paying a dividend in light of its recent success, but the firm has yet to do so. The fact that the company isn’t yet making a lot of money helps explain some of this. For the year 2021, consensus profit predictions for Netflix peg the company’s stock price at $10.38 per share, a yield of just 1.8%.
If it wanted to create a 1.8% dividend yield, it would have to distribute nearly all of its yearly earnings-per-share, which it would never do because it would deprive the firm of income it might use to invest in growth and retire debt. Netflix’s low earnings return and lack of dividends are due to hefty content costs.
Reasons For Paying A Dividend
It is not uncommon for corporations to issue dividends as part of their capital allocation strategy. This has been the case for several corporations, such as Dividend Aristocrats such as Coca-Cola (KO) and Johnson & Johnson (JNJ). As a matter of fact, both Coca-Cola and J&J are members of the exclusive Dividend Kings list
Dividends are now being paid by even corporations who were previously unwilling to do so. Technology companies, for example, used to spend a lot of money to build their company, but now they utilize dividends as a way of returning cash to shareholders. Because their shareholder bases requested a dividend and their business models provided continuous free cash flow, companies like Apple (AAPL) and Cisco Systems (CSCO) have started paying dividends in the recent decade.
It’s easy to see why these investors seek dividends from firms. Dividends act as a safety net in times of market turmoil since stock values plummet and dividends are paid out. Investors who reinvest dividends have the opportunity to buy more shares at a lower price, increasing their dividend income overall. When the stock market rises again, dividends merely contribute to shareholder gains.
For retirees, dividends are an important source of income. Retirement investors might supplement their income through dividends. Even though a person is no longer receiving a paycheck from their employment, they still have to pay for the necessities of life. Because of this, dividends can be a crucial part of a retirement strategy.
However, growth firms like Netflix vary from time-tested dividend stocks like Coca-Cola and Johnson & Johnson in that they still need to spend enormous amounts of capital on content in order to build their businesses. If Netflix wants to grow its subscriber base in the future, this is a must-have expense.
Amazon (AMZN), YouTube (GOOG), Hulu, and The Walt Disney Company (DIS) are just some of the entertainment industry’s competitors, so it’s probable that spending will continue to climb. Netflix may never pay a dividend to its shareholders because of this.
Will Netflix Ever Pay A Dividend?
Paying a dividend has a number of advantages, but there are just as many reasons not to. A dividend payment necessitates sufficient cash flow to cover the payments. Netflix, for example, would have a difficult time returning quarterly dividends to shareholders because it doesn’t generate regular free cash flow.
By the end of 2021, the company’s earnings per share are predicted to reach $10. A dividend would be a viable option for the company, but Netflix continues to spend its cash flow for expansion projects, thereby increasing the company’s customer base.
Netflix has been unable to create positive free cash flow growth as a result of this. In fact, Netflix’s free cash flow is expected to be about breakeven this year, which is an increase above the company’s usual free cash flow of a deficit.
Debt markets are also necessary for Netflix’s spending because of the company’s huge capital expenditures. The firm’s balance sheet has been negatively harmed by this, making it even more difficult for the corporation to pay a dividend in the future. According to Netflix’s latest financial results, the company has $14.9 billion in long-term debt compared to $7.7 billion in cash and other assets.
A dividend payment to Netflix’s shareholders has become increasingly challenging due to the company’s rising level of interest-bearing debt. Netflix’s investment spending and debt repayment are more important to management than a dividend, so a dividend may not be the best option for the company.
Final Thoughts
A company’s capital allocation strategy is not fixed. In the long run, capital allocation policies can be modified. Paying a dividend may become an option for a company as it matures. Once a company has established a track record of profitability, the management may decide that paying a dividend is a good way to both reward existing shareholders and attract new ones.
It is possible, but not likely, that Netflix may follow Apple, Cisco, and others in deciding to pay a dividend in the future.
As of today, Netflix has a lot of competition, so it has to spend all of its money on original programming. Investors should not expect dividend payments from the company any time soon, as the company has a substantial amount of debt on its balance sheet.
However, there are other reasons to see Netflix as a viable investment. Revenue and users are increasing as the company’s streaming service gains worldwide popularity. Netflix has the potential to continue to be a high-yielding stock because of these factors. Although Netflix’s capital requirements and debt levels are still high, a dividend is unlikely to be paid by Netflix in the near future.
Other stocks that don’t now pay dividends can be found in the following articles:
How much is Netflix dividend per share?
Netflix’s (NFLX) dividend payout and yield history, going back to 1971. Currently, Netflix (NFLX) is paying out $0.00 in dividends for the last three months. Netflix’s current dividend yield is 0.00 percent as of December 03, 2021.
Does Google stock pay dividends?
Stock dividends, or regular cash transfers from earnings, are common at many technology companies. The parent company of Google, Alphabet (GOOGL), is not one of them, despite the pressure of investors and industry experts to pay them.
What is Coca Cola dividend?
For than a century, Coca-Cola has been quenching people’s thirst. The company manufactures and sells its drinks all around the world, with a focus on places like restaurants, theaters, and amusement parks where people go to escape from the house. As economies have begun to recover from the effects of the coronavirus pandemic, the strategy is now working to its advantage.
In addition to the dividend of $0.42 per share, Coca-dividend Cola’s yield is 3.07 percent. Over the past few years, the company’s dividend payout ratio, which is the percentage of earnings distributed to shareholders as dividends, has risen to more than 100%. Because eventually the company runs out of cash, a dividend payout ratio of more than 100% is unsustainable.
Does Tesla pay a dividend?
On our common stock, Tesla has never paid a dividend. We do not expect to pay any cash dividends in the near future because we plan to use all future earnings to fund future growth.
How do I make $500 a month in dividends?
The following is a step-by-step guide to getting started with a monthly dividend portfolio. This will take time to create unless you have a significant sum of money sitting around waiting to be invested. And that’s fine with me as well.
Open a brokerage account for your dividend portfolio, if you don’t have one already
You must first open a brokerage account if you don’t already have one. Examine the brokerage firm’s trading commission fees and minimal standards. 2019 saw a number of the largest brokerage firms slash their trade commissions to zero dollars per deal.
Your dividend portfolio will benefit from the move to zero-commission trades since you may make smaller acquisitions without having to worry about costs eating away at your strategy.
Also, verify any minimum account balances, as some companies impose an account fee if the amount falls below a specific number. As in 2019, several organizations have reduced their balance minimums to zero, but you should always check this as a precaution.
Choosing between a standard brokerage account and a tax-deferred retirement account when you open your account and begin your strategy is an important decision. Consider talking to your tax professional to see what’s best for your unique position and needs.
Make sure to check out the direct deposit and transfer options for your new bank account before you get started. Adding to your investment portfolio on a regular basis is essential for growing your wealth. It’s easier to achieve your goals when you remove a step from the process through automation. Withdrawing money from your checking account is an alternative if you do not have the option of direct deposit at work.
As soon as your new account is up and running, begin transferring funds to it. After that, look at your spending plan to see how much money you have each month to put into the venture.
Determine how much you can save and invest each month
At least $200,000 in dividend stocks is required to earn $500 a month in dividends. The exact amount will be determined by the dividend yields of the companies you choose for your portfolio. “
Decide how much money you can afford to put away each month to invest in your portfolio. With the amount of money you’ll need to meet your $500 a month dividend objective, you’ll need to keep adding to your portfolio on a regular basis.
The length of time it will take you to achieve your goal will be influenced by the amount of money you have available to invest each month.
In the event that your finances are already stretched thin, try to save as much as possible. Even if it’s just a modest amount, it’s a start.
Look at your budget again to see if there are any ways you can save money so that you can invest it instead.
A short-term dividend target might help you keep track of progress toward your long-term goal. You may be able to achieve a goal of $50 or $100 each month in dividends this year. It’s a terrific first step toward accumulating a greater monthly dividend income in the future.
Set up direct deposit to your dividend portfolio account
Get your brokerage account’s direct deposit details so that you can change your pay instructions. Hopefully, your work permits you to split your income in multiple ways so that you can still receive money into your usual checking account. ” Don’t forget to take care of your financial obligations while you’re investing for the future!
Set up free account transfer instructions within the brokerage account if you’ve run out of direct deposit instructions from your brokerage business or if you don’t have clear instructions. For each payday, set a reminder to transfer the money you’ll be investing. If the initial option is unavailable, there is almost always a backup plan.
Choose stocks that fit your dividend strategy
In order to make an informed choice about which stocks to buy, investors must conduct extensive due diligence on the companies they intend to invest in. A few things should be taken into account for each company when building a dividend portfolio:
- a history of dividend increases and the length of time they’ve been paying them
Understanding the health and profitability of a firm can give you an idea of how safe future dividend payments are. When deciding which stock to buy, it is vital to do some research on the company and read some opinion.
You may get a sense of the company’s future dividend payouts by looking at the company’s dividend history and payment increase trends. Investing in dividend-paying stocks might also help you achieve your dividend goals by snowballing.
Knowing the industries of the firms you choose to invest in can help you build a well-balanced and diverse investment portfolio. You can’t put all your eggs in one basket when it comes to risk management. Investing in a wide range of firms and industries helps to mitigate the risk of future dividend payments.
Another factor to consider is when the company distributes dividends. In order to receive dividends on a regular basis, you may wish to focus on companies that follow a specific payout schedule. It doesn’t follow, however, that a stock’s historical distribution schedule should dictate whether you buy it or pass it up. Your decision-making process will benefit from it.
Watchlist firms that you want to invest in so when the money is available, you can buy shares and increase your dividend income by purchasing more shares.
Buy shares of dividend stocks
Start buying stock in the firms you wish to concentrate on to finally reach your monthly dividend objective. You’ll always have cash on hand when you need it thanks to automatic payroll deposits.
Double-check your watchlist before you acquire shares to see which stock is currently the best bargain. Avoiding “market timing,” which almost always fails, and instead ensuring that your purchases are cost-effective are the two most important aspects of this strategy.
To your advantage, most large brokerage firms have eliminated all trade commissions, so you may buy stocks in smaller lots without worrying about fees chipping away at the value of your investment, which is great news.
A quick glance at your watchlist might help you avoid becoming overwhelmed with information and making bad decisions. If you’re investing in blue-chip companies, check the calendar to see if you’ll be eligible for the next dividend payment or, if the price is lower, if you can get more shares for your money.
How long do you have to own a stock to get a dividend?
Dividends are paid out after just two business days of holding a stock. To be eligible for the dividend, you would need to acquire a stock with one second remaining before market closing and hold onto it for two working days. However, buying a company only for the purpose of receiving a dividend might be expensive. You’ll need to know the phrases ex-dividend date, record date, and payout date in order to grasp the complete procedure.
Can I live off of dividends?
Retirement security is a top concern for the majority of investors. In many cases, the majority of people’s assets are devoted to that goal. When you eventually retire, it can be just as difficult to live off of your investments as saving for a happy retirement.
In most cases, bond interest and stock sales are used to make up for the rest of the withdrawals. The four-percent rule in personal finance is based on this fact. It is the goal of the four-percent rule to give a continuous stream of income to the retiree, while simultaneously maintaining an account balance that will allow funds to last for many decades. Wouldn’t it be nice if you could gain 4% or more out of your portfolio each year without having to sell any of your stock?
Investing in dividend-paying stocks, mutual funds, and ETFs is one strategy to increase your retirement income (ETFs). Your Social Security and pension payments will be bolstered by the dividends that you receive over time. It may even be enough to allow you to retain your preretirement lifestyle in the long run. If you have a little forethought, you can survive off dividends.
