Will Netflix Pay Dividends?

Other corporations, on the other hand, do not now pay a dividend and may not do so for a long time (or ever). Companies in their early stages of development frequently prefer to reinvest extra capital back into their business rather than giving it to shareholders. After all, every dollar paid out in dividends is a dollar that cannot be used to expand the company.

Netflix (NFLX) is a good illustration of this, given the firm does not pay a dividend and hasn’t done so since going public in May 2002. This isn’t to say that investors should always shun stocks that don’t pay dividends. In reality, growth stocks like Netflix may appeal to investors seeking capital gains rather than income. Over the last five years, Netflix shares have delivered annualized returns of 43 percent, a substantial return for anyone who invested during that time.

Many tech stocks have started paying dividends in the last decade as they have matured and are now profitable. Netflix shareholders may be wondering if the company would ever pay a dividend.

Business Overview

Netflix is a media behemoth, with over 200 million subscribers distributed over 190 countries. While Netflix has a large selection of second-run television shows and movies, it also creates its own original material.

The business started small, with subscribers receiving DVDs in the mail. In recent years, it has changed its concentration to Internet-based streaming services. Netflix subscribers have access to a vast library of TV shows, documentaries, and feature films in practically every genre. Furthermore, Netflix has invested substantially in generating its own content, which has been vital to the company’s success in rapidly building its subscriber base.

Over time, this has resulted in massive revenue growth. From 2016 to 2020, Netflix’s annual revenue nearly tripled, reaching $25 billion last year. The rate of membership growth has slowed in recent years, which is to be expected following such a long period of rapid expansion.

The company’s earnings per share increased from $0.43 in 2016 to $6.08 in 2020. Given this growth, investors might expect Netflix to contemplate paying a dividend to shareholders, but the firm has yet to do so. Part of this can be explained by the fact that the company is still not very lucrative. Netflix is expected to earn $10.38 per share in 2021, representing an earnings yield of just 1.8 percent, according to consensus estimates.

To put it another way, it would have to disperse nearly all of its annual earnings-per-share merely to create a 1.8 percent dividend return, which it would not do because it would leave the company with little funds to invest in growth or debt repayment. Netflix has a low earnings yield and does not pay a dividend because content costs are high.

Reasons For Paying A Dividend

Dividends are a key element of many organizations’ capital allocation plans, thus they pay them. Dividend Aristocrats such as Coca-Cola (KO) and Johnson & Johnson (JNJ) have grown their dividends for decades. Coca-Cola and Johnson & Johnson are also members of the Dividend Kings list.

Even corporations that have been hesitant to pay dividends in the past have started to do so in recent years. This is especially true among technology companies, which used to spend a lot of money to build their operations but are increasingly turning to dividends to return capital to shareholders. In the recent decade, companies such as Apple (AAPL) and Cisco Systems (CSCO) have started paying dividends since their shareholder bases demanded it and their business models generated continuous free cash flow.

It’s easy to see why these investors would want their companies to pay dividends. Dividends protect investors from paper losses when stock prices fall during a market slump. They also enable dividend reinvesting investors to buy more shares at lower prices, increasing their overall dividend income. Dividends only add to shareholder returns when markets rise again.

Dividends are a great way for retirees to supplement their income. Dividends can help retirees make up for the income they lost when they retired. Even when people are no longer receiving a paycheck from their employment, life expenses persist. As a result, dividends can be a significant part of a retirement planning approach.

Growth firms like Netflix, on the other hand, differ from tried-and-true dividend stocks like Coca-Cola and Johnson & Johnson in that they still need to spend a lot of money on content in order to grow. This is an unavoidable cost if Netflix wants to sustain, if not expand, its subscriber base in the future.

Amazon (AMZN), YouTube, Hulu, and The Walt Disney Company (DIS) are all competitors in the entertainment industry, so it’s likely that spending rates will continue to climb. Netflix may never pay a dividend to shareholders as a result of this.

Will Netflix Ever Pay A Dividend?

While there are compelling arguments for paying a dividend, there are also compelling arguments for not doing so. Paying a dividend necessitates the availability of cash to cover the payments. Companies like Netflix would struggle to find funds to return to shareholders on a quarterly basis if they didn’t have constant free cash flow.

In 2021, earnings-per-share are predicted to approach $10. While Netflix could theoretically pay a dividend based on this, the company prefers to invest its cash flow on growth projects in order to expand its subscriber base.

Netflix has been unable to create positive free cash flow growth as a result of this. This year, Netflix forecasts free cash flow to be about breakeven, which is an improvement over previous years when the business has reported negative free cash flow.

Netflix has to access debt markets in order to keep spending because it is using a big amount of capital. This has had an effect on the company’s balance sheet, posing another another roadblock to a future dividend payment. Netflix had $14.9 billion in long-term debt and $7.7 billion in cash and equivalents at the end of the most recent quarter.

This increase in interest-bearing debt makes it even more difficult for Netflix to pay a dividend to its stockholders. Given the foregoing, a dividend may not be the best option for Netflix, as its investment spending and debt repayment remain far higher priorities.

Final Thoughts

It is not set in stone how a corporation allocates capital. It is possible to adjust a capital allocation policy over time. A growing company may conclude that paying a dividend is a prudent use of capital as it develops. When a company achieves consistent profitability, management may decide that paying a dividend will both attract new investors and reward existing ones.

It’s possible that Netflix, like Apple, Cisco, and others, will decide to pay a dividend in the future, but this is unlikely.

Netflix currently has a slew of competitors, which means it must make the most of every dollar it has to keep producing original content. Investors should not expect dividend payments from the company anytime soon, given the significant amount of debt on the balance sheet.

Netflix may still be a solid investment for a variety of reasons. As the company’s streaming service grows in popularity throughout the world, so does its subscriber base and revenue. Netflix may continue to be a profitable growth company as a result of these factors. Netflix, on the other hand, is unlikely to ever pay a dividend due to its huge capital requirements and high debt levels.

See the following articles for analysis on whether other stocks that do not currently pay dividends will do so in the future:

How much dividend does Netflix pay per share?

Netflix paid $0.00 in dividends per share for the three months ending in September 2021. It paid $0.00 in dividends per share for the trailing twelve months (TTM) ending in September 2021.

Has Google ever paid a dividend?

Stock dividends, or regular cash payments from earnings, are paid by many technology businesses to their shareholders. Despite pressure from investors and industry experts, Alphabet (GOOGL), the parent firm of Google, isn’t one of them.

What is Coca Cola dividend?

For than a century, Coca-Cola has been quenching people’s thirst. The company manufactures and sells its beverages all around the world, with a focus on restaurants, movie theaters, and theme parks. The technique backfired during the coronavirus outbreak, but it’s now paying off as economies recover.

Coca-Cola pays a quarterly dividend of $0.42 per share, resulting in a dividend yield of 3.07 percent. The company’s dividend payout ratio, or the percentage of earnings paid out as dividends, has risen to over 100% in recent years. In particular, a dividend payout ratio of more than 100% is unsustainable in the long run since the company will eventually run out of cash.

Can you get rich off of dividends?

Investing in the greatest dividend stocks over time can make you, your children, and/or grandkids wealthy. Investing small amounts of money in dividend stocks over time and reinvesting the dividends can make many investors wealthy, or at least financially secure.