Nvidia (NVDA) has been a beacon of wealth creation for investors, with its stock soaring over 3,000% in the last five years. Extending this horizon to a decade would only amplify the mind-boggling returns.
The company’s robust growth in both revenue and profitability has underpinned this surge. Analysts project Nvidia’s revenues to exceed $120 billion in fiscal year 2025, a staggering leap from $10.9 billion just five years ago. Moreover, the anticipated net income for the current fiscal year stands at over $67 billion, nearly 19 times the earnings from 2020.
Nvidia’s Conservative Dividend Policy
Despite the impressive growth trajectory, Nvidia’s approach to dividends paints a different picture. While recently upping its quarterly dividend by 150% to $0.10, the company has displayed a tightfisted attitude towards dividend distribution.
Despite soaring profits, Nvidia has kept dividend payouts stagnant, leading to a meager dividend yield of 0.038% even after the recent increase. This conservative stance contrasts sharply with the exhilarating surge in share price, causing the yield to dwindle.
Nvidia Trails in Dividend Yield Among Tech Giants
When compared to tech behemoths like Meta Platforms, Alphabet, and Microsoft, Nvidia’s dividend yield pales in comparison. The company’s yield stands as the lowest among the elite group, excluding non-dividend payers like Amazon and Tesla.
Meta Platforms and Alphabet, initiating dividends in 2024, boast a yield surpassing 0.40%, a stark contrast to Nvidia’s feeble 0.038%. Meanwhile, Microsoft leads the cohort with a 0.70% yield, albeit modest when measured against the broader S&P 500 Index.
Unveiling the Tech Dividend Dilemma
Tech companies’ reluctance to offer substantial dividends stems from their growth-centric nature. These firms often prioritize reinvestment and acquisitions over dividend payouts. Share buybacks, a favored method to return cash to shareholders, are prevalent in tech, exemplified by Apple’s recent record $110 billion buyback.
Nvidia’s extensive share repurchases, totaling $9.5 billion in fiscal year 2024, follow this trend of prioritizing buybacks over dividends to reward shareholders.
The Rationale Behind Special Dividends
Special dividends, a rare treat for investors, typically materialize following windfall gains or exceptional circumstances like asset sales. Ford’s issuance of a special dividend in 2023 post-Rivian stake sale epitomizes this practice.
In the tech realm, special dividends remain a rarity. Microsoft’s monumental $32 billion one-time dividend in 2004 stands as a memorable exception among industry giants.
Should Nvidia Contemplate Special Dividends?
Nvidia’s robust earnings outlook, with projected net income doubling in the current fiscal year, coupled with a substantial cash reserve of $31.4 billion, raises the question of a potential special dividend.
Despite a meager regular dividend yield, Nvidia investors have reaped handsome total returns, surpassing those of its peers. However, the prospect of a special dividend, while enticing, remains uncertain given the company’s colossal market capitalization.
Considering Nvidia’s changing valuation landscape, a strategic shift towards special dividends from buybacks could entice shareholders as the company’s shares lose their once-attractive valuation.