Investors haven’t been affected by Amazon’s absence of a dividend because the company has been a top growth stock up until now. Amazon’s stock has achieved an average annual return of 32% over the last decade.
However, Amazon’s absence of a dividend payment makes it an unattractive choice for income investors. This article will examine the likelihood that Amazon will ever pay a dividend to shareholders.
Business Overview
An online retailer, Amazon has a vast e-commerce platform where customers may buy anything they want using their computers or cellphones. ” With a market capitalization of over $1.6 trillion, Amazon is one of the world’s most valuable companies.
There is a global retail platform for consumer products through the company’s websites in the North American and International regions. Consumers, small businesses, large corporations, and government organizations are all customers of Amazon Web Services’ subscription-based cloud computing and storage services.
Revenue growth at Amazon has been spurred by the company’s e-commerce operations in recent years. Consider that Amazon made $14.84 billion in revenue in 2008. By 2020, sales are expected to have risen to $386 billion, a phenomenal increase over the previous decade.
Amazon’s growth in 2021 is expected to continue as the demand for e-commerce grows.
In the end, Amazon’s massive revenue rise did not come without a price (or cheaply). As a result, Amazon’s retail operation required a large investment of capital. Since Amazon’s expansion was so rapid, the company’s profit margins were razor-thin for a long time. According to data from the past decade, the company has been profitable in every year except 2014.
Amazon’s sales grew by 15% in the third quarter of 2021 to $110.8 billion. Amazon’s EPS fell by 50% as the business continued to invest substantially in growth projects, but the corporation still managed to earn a positive EPS of $6.12 for the quarter.
The retail industry, despite its poor gross margins, continues to grow at a rapid pace. While Amazon’s overall profits have grown at an astounding rate, the AWS segment has been the driving force behind this expansion. Amazon’s chances of paying a dividend increase as a result of its robust earnings growth.
In spite of this, the corporation continues to invest extensively in growth, which results in a fluctuation in earnings per share.
Growth Prospects
Growth investment is Amazon’s top focus, as is the case with many technological companies. In part, this is due to necessity. In a highly competitive and cyclical business like technology, the pace of change may be breathtaking. To remain competitive, technology companies must make significant investments.
Amazon is no exception; it is investing heavily on its online shopping infrastructure to keep up with the competition. Amazon’s retail operation continues to grow. Whole Foods, a natural and organic grocery store chain, was purchased for approximately $14 billion by the company. As a result, Amazon now has the physical presence it needs to broaden its grocery distribution.
There’s more to come from Amazon. In addition to retail, it plans to expand into other industries, such as healthcare and media. Customers who subscribe to Amazon Prime get access to a massive media platform from which they may watch and download material.
Additionally, creating original content is a costly undertaking for which a large amount of money is needed in order to compete with the likes of Netflix (NFLX) and Hulu, as well as other major studios and streaming services.
Since Amazon has a stranglehold on retail and media, it is preparing for a possible foray into healthcare. Online pharmacy PillPack was acquired by Amazon in 2018 for $753 million, which is likely the first step in Amazon’s larger healthcare strategy.
Profitability is the primary focus of Amazon’s investors, and these investments will help drive that expansion. However, Amazon’s capacity to pay dividends to shareholders will be limited for some time due to its aggressive spending.
The recent spike in costs in Amazon’s business is an additional hurdle to the company’s earnings-per-share growth. Additionally, Amazon announced that it anticipated additional fourth-quarter expenditures owing to workforce shortages, wage increases, and rising freight and shipping prices.
Compared to the $6.9 billion earned in the fourth quarter of 2020, Amazon estimates operating income in the breakeven to up to $3 billion range for the fourth quarter of 2019.
Will Amazon Ever Pay A Dividend?
Like Apple and Cisco, Amazon is a profitable tech company with high earnings-per-share. While Netflix (NFLX) has yet to pay a dividend due to its lack of continuous revenues, Amazon has moved ahead of the pack in this regard.
This marks a new high point in Amazon’s profitability, as their 2020 earnings-per-share came in at $41.83. When it comes to the dividends, Amazon is still a long way from being a reality.
If Amazon wanted to, it could theoretically issue a dividend. Amazon generates free cash flow that may be utilized to pay dividends, making it free cash flow positive.
What is Coca Cola dividend?
For nearly a century, Coca-Cola has quenched the thirst of the world’s population. With a focus on restaurants, cinemas, and theme parks, the company makes and sells its drinks around the world. As economies have begun to recover from the effects of the coronavirus pandemic, the strategy is now working to its advantage.
As of this writing, Coke is yielding a dividend of 3.07 percent by paying out $0.42 per share each quarter. Dividend payout ratio, or the percentage of profits distributed as dividends, has risen to more than 100% in recent years. Due to this, a dividend payout ratio of more over 100 percent can’t be sustained for a lengthy period of time.
Does Tesla pay a dividend?
Tesla’s common stock has never been 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.
Should I buy stocks that dont pay dividends?
- Stocks with low P/E ratios, but high earnings, could be a smart investment if the price is low enough.
- The value of a company’s assets and liabilities is known as its book value, and stocks that are priced below this value tend to perform better.
- It is possible to invest in stocks that do not pay dividends if they have low P/E ratios or significant profit growth.
Can you live on dividends?
Priority number one for most investors is ensuring a secure and comfortable retirement. In many cases, the majority of people’s assets are devoted to that goal. It might be just as difficult to maintain a nice retirement as it is to save enough to do so.
Most of the time, a mix of interest income from bonds and the sale of stock is used to pay for the balance of the withdrawal. This fact is the foundation of the well-known four-percent rule in personal finance. 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. What if there was a method to extract 4% or more out of your portfolio each year without having to sell any of your shares and risking the loss of your entire investment?
Investing in dividend-paying stocks, mutual funds, and exchange-traded funds can help you supplement your retirement income (ETFs). You can augment your Social Security and pension income with dividend payments over time. It may even be enough to maintain your preretirement standard of living. If you have a little forethought, you can survive off dividends.
