Big Tech Shifts: Alphabet's Dividend & $70B Buyback Spark Interest

Key Takeaway

• Alphabet announces its first-ever dividend of 20 cents per share and a $70 billion buyback, driving its stock up 10%.
• Trend among tech giants like Meta Platforms and Salesforce initiating dividends signals a shift towards rewarding shareholders.
• Tech sector offers growth and income prospects, with companies like Qualcomm and Broadcom providing attractive dividend yields.

Alphabet's Dividend Announcement

Alphabet, the parent company of Google, recently announced a significant return to shareholders, including a $70 billion share buyback and its first-ever dividend of 20 cents per share, payable in June. This move has been well-received by investors, leading to a 10% increase in Alphabet's stock price following the announcement. The tech giant's first-quarter results exceeded analysts' expectations, contributing to the positive market reaction. Alphabet joins other tech companies like Meta Platforms and Salesforce, which have also initiated dividends, signaling a trend among tech giants to reward shareholders through dividends and share repurchases.

Charlie Gaffney, managing director at Morgan Stanley Investment Management, expressed optimism about Alphabet's future dividend growth, highlighting the company's strong free cash flow generation. This sentiment reflects a broader confidence in Alphabet's financial health and its ability to increase shareholder value over time.

Dividend Investing in Tech Stocks

The introduction of dividends by tech giants like Alphabet has sparked interest in the potential of dividend investing within the technology sector. Historically, tech companies have been associated with growth through stock appreciation rather than dividend payouts. However, the recent trend indicates a shift, with companies like Alphabet, Meta Platforms, and Salesforce initiating dividends, albeit with modest yields compared to the broader S&P 500.

Investors who adopt a buy-and-hold strategy, especially with dividend-reinvesting, can see significant returns over time. For example, a long-term investment in IBM, with dividends reinvested, would have yielded a return of 228.1% by the end of 2023. This approach underscores the potential of combining income through dividends with growth prospects in the tech sector.

Growth and Income Prospects

The tech sector continues to offer a blend of growth and income opportunities for investors. Companies like Qualcomm and Broadcom, with dividend yields of 2% and 1.6% respectively, not only provide income but also have strong growth prospects. Analysts have identified several tech stocks that offer this combination, with potential upside in their price targets and favorable analyst ratings.

The recent performance of tech stocks, including Alphabet's dividend announcement, has highlighted the sector's potential for both growth and income. This dual appeal is particularly relevant in a market environment where investors are looking for ways to diversify their income sources, especially in anticipation of potential shifts in interest rate policies by the Federal Reserve.

Street Views

• Charlie Gaffney, Morgan Stanley Investment Management (Bullish on Alphabet):

  "Alphabet validated our investment approach to some degree... They generate an awful lot of free cash, and we feel good about what the business looks like. We are excited that they initiated, but we’re also excited about the opportunity to grow the dividend over time. ... I find it highly unlikely they just hold the dividend at this level."