Before we pop the Champagne cork...

Alphabet's dividend is a good sign, but the return of the cash nexus will take years. For now, it's just sparkling wine.

I was delighted but not surprised to see Alphabet bow to the inevitable and institute a dividend. They had no choice. The return of the cash nexus in the US stock market means companies that can afford to distribute excess profits will need to do so to compete for capital and attention. And those that can’t—some of the biggest tech names—will find themselves in the penalty box.

But before we pour the bubbly, let’s do some math. Meta’s recent dividend of $2 per share will cost the company something on the order $5.5 billion annually. At the time of the announcement on February 1, Meta also added $50 billion more to their ongoing repurchase plan, a ratio of nearly 10:1. The cash yield for investors since the February 21 ex-date has been less than 0.5%. Salesforce’s just initiated $1.60 annual payment is worth about $1.6 billion, compared to an announced buyback of $10 billion, a ratio of just over 6:1. The yield on the CRM shares is about 0.6%.

Alphabet’s announcement is of the two-steps-forward, one-step back variety. The $0.80 annual dividend will amount to a cash outlay of $10 billion, compared to a newly announced $70 billion buyback, a ratio of 7:1. Yield on close today was 0.5%; for tomorrow’s open, it will likely be closer to 0.46%.

On 2023 earnings, these dividends represent payout ratios of 14% for Meta, 38% for Salesforce, and 14% for Alphabet. (Bravo to Salesforce.)

These three companies alone will add ~$17 billion in S&P 500 Index companies dividends, off of a 2023 base of just under $600 billion. That’s a nearly 3% increase from these initiators alone. Sadly, however, these new dividends aren’t very accessible. With yields around 0.5%, they are very expensive income streams. Notably, the same companies are adding a whopping $130 billion in prospective buybacks over the next several years, a 15% or so increment to the $800 billion that occurred in 2023.

In short, the dividend announcements are welcome and important first steps, but we have a way to go to making the US stock market once again a cash-based investment platform. Stay tuned. There is definitely more to come, as discussed (and somewhat presciently forecasted!) in The Ownership Dividend.