Thursday is Mark Zuckerberg’s favourite day of the week. Facebook went public on Thursday, May 18, 2012, and was one of the biggest IPOs in the tech sector and internet history. On October 28, 2021, a Thursday, the social media giant announced changing its name to Meta Platforms.
On February 1, 2024, another Thursday, META announced that it would pay its first-ever dividends. Investors did not expect the news as Facebook then and Meta today returned cash to shareholders only through share buybacks.
Shareholders of record on February 22 were paid a $0.50 per share dividend (0.4%) on March 26, and the ensuing payouts will be quarterly. The company also authorized a US$50 billion share buyback.
Tax considerations
Is Meta worth buying because it’s a dividend-payer now? According to its CFO, Susan Li, returning capital to shareholders remains an important priority. But she adds that introducing a dividend is a nice complement to the existing share repurchase program. It also provides a more balanced capital return program and some added flexibility in the future.
While META is a blue-chip stock and belongs to the US$1 trillion club (market cap), the nearly US$520 share price is steep for regular investors. Moreover, the dividend yield is very modest. For Canadians wishing to take positions in META, the dividends are subject to a 15% withholding tax and are non-recoverable, even in a Tax-Free Savings Account (TFSA).
Fortunately, because of a tax treaty between Canada and the U.S., dividends from American companies are tax-exempt but only if the stocks are in a Registered Retirement Savings Plan (RRSP).
Better buy
Meta is a growth stock, but its gains in the last three years (+65%) have not been spectacular. The three-year performance of Canadian stocks in the 2023 TSX30 List, the flagship program for growth stocks, are between 304% (rank 30) and 1,913% (rank 1).
The Canadian Imperial Bank of Commerce (TSX:CM) is a hands-down choice or better buy than Meta for income-oriented investors. At C$67.16 per share (+6.7% year to date), the dividend yield is 5.36%. Besides those dividends are sustainable (53.36% payout ratio); the C$6.2 billion bank has been paying dividends since 1868.
Its 156-year dividend track record lends confidence and is a compelling reason to invest in CIBC. In Q1 fiscal 2024 (three months ending January 31, 2024), net income climbed 299% to C$1.7 billion versus Q1 fiscal 2023 despite a fluid economic environment.
Its President and CEO, Victor Dodig, said CIBC is building on the growth momentum it has established over the last few years and has delivered a strong start to fiscal 2024. CIBC CFO Haradh Panossian adds, “We remain focused on scaling our U.S. business and are positioned to drive long-term profitable growth across both Commercial Banking and Wealth Management.”
Dividend universe
Meta is undoubtedly a growth stock for the long term. The unveiling of its next-generation custom-made chips for AI workloads should boost the stock further. However, if your objective is to create passive income, CIBC is the logical choice. Moreover, unlike Meta, Canada’s fifth-largest bank is not new to the dividend universe.
