Meta (Nasdaq: META) stock skyrocketed after its earnings and announcement that it will begin paying a $0.50 dividend.
What’s the future of Facebook’s dividend? Motley Fool Canada analyst Nate Parmelee discusses in this video (transcript below).
Transcript
I’m Motley Fool Canada analyst Nick Sciple, and this is the “5-Minute Major” here to make you a smarter investor in about 5 minutes. Today we’re looking at Meta Platforms‘ (NASDAQ: META) latest earnings report, which shocked the market with a huge beat and a first-ever dividend. My guest today is Dividend Investor Canada lead advisor, Nate Parmelee. Nate, thank you for joining me.
Nate Parmelee: Thanks for having me
Nick Sciple: Great to be here with you, Nate. Meta shares up over 20% intraday in response to this latest earnings report. What were your biggest takeaways from the announcement?
Key takeaways from Meta’s earnings
Nate Parmelee: So two big things stood out to me with the earnings release. The first is just how much of their growth right now is being driven by Chinese e-commerce and advertising that’s going on on Facebook and on their other platforms, probably most recognizable by Temu, which seems to be out there advertising everywhere with all the deals they’re trying to do to get their platform going.
The second thing that stood out to me is the dividend. That’s the thing everybody’s talking about, which which isn’t huge, and they almost never are to start. But anytime you see a company put the dividend out there, it’s usually a commitment to start returning capital to shareholders.
Facebook parent company Meta announces $0.50 dividend
Nick Sciple: That’s right. It’s doing all this while still investing in the metaverse, the next future of computing. So let’s talk about that dividend starting out at $0.50 a quarter. It doesn’t seem that much for a stock that now, after this latest post earnings pop, is over $450 per share, but things can get a lot bigger over time. Nate, you spend a fair bit of your time looking at dividend stocks here at Motley Fool Canada. How do you rate Meta’s chances of becoming the next great dividend stock?
Tech stocks as dividend stocks
Nate Parmelee: You know, it’s interesting because we don’t think of tech stocks, even the ones that pay dividends like Apple (NASDAQ: AAPL) and Microsoft (NASDAQ: MSFT), as being great dividend payers. But they actually can be. And great dividend growers, which happen to be the best dividend stocks of all — the ones that grow their dividends actually perform the best over the long term. Meta is really set up to be exactly that type of company if they can sustain their ad revenue. They have tons of cash flow. They ooze cash flow from the ad revenue. Their platforms — they have to invest in them regularly — but they pretty much run themselves. There’s lots of scale there, and it’s recurring cash flow. You’ve got a shareholder and a CEO who owns 13.5% of the shares. I’m sure he’d like to take some of that home as an owner as well without paying it out in bonuses and other ways like that. Those are all kind of classic signs you look for in a company that can be a great dividend grower over the long term. So we don’t think of tech stocks that way. But I would say, Meta is set up to be, maybe, like Microsoft, where you see a sub-1% dividend yield. But they’re upping that dividend 8%, 9%, 10%, 12% every single year. And it’s really impressive. As a shareholder, you can look back and buy it at a 1% yield. And then, 8 or 9 years later, all of a sudden, you’re getting a 5%, 6%, 7% yield on your purchase price, and you don’t think about it that way at the outset, when you’re buying the shares you’re not like, “Oh, I’m gonna get a ton of income from this stock.” You’re thinking about the growth. So it’s one of those stocks that can be, I think, really beneficial to people in the long term when they’re looking 5 or 10 years down the road and planning out their portfolio on how they’re going to invest.
Nick Sciple: Yeah, very rare to see a company at the cutting edge of new technology also becoming a potential income investment. Nate, thank you so much for joining me for this addition of the “5-Minute Major,” and we’ll see everybody next time.
Nate Parmelee: See you next time.
