meta platform (NASDAQ:Meta) The stock has soared this year, rising more than 35%. This adds to the stock’s 194% rise last year, as the stock rebounded from its crash in 2022.
Why is Wall Street so excited to buy Meta stock? The social network specialist’s accelerating revenue growth, improving earnings, massive share buyback program, and recently announced dividend, among other things. Masu. Here, we take a closer look at how management is returning significant cash to shareholders due to the company’s strong financial momentum.
Strong background for quarterly dividends
A look at Meta’s financials reveals that the company has likely been paying dividends for quite some time. Indeed, Meta’s free cash flow, or the cash flow left over after normal operations and capital expenditures, took a big hit in 2022, dropping more than 50% year over year. However, free cash flow for the year remained at $19 billion.
To management’s credit, Meta returned capital to shareholders during 2022, albeit indirectly through share buybacks. The company bought back $31.5 billion worth of its own stock.
Therefore, it cannot be said that Meta is being stingy with funds. On the contrary, the company is actively returning profits to shareholders. It just hasn’t paid dividends yet.
The company’s 2023 performance likely cemented management’s confidence in its dividend payout. Free cash flow not only recovered, but hit a record high of nearly $44 billion for the year. Furthermore, the company’s cash and marketable securities ballooned to $65.4 billion by the end of 2023. This pile of cash far exceeded its $18.4 billion in debt. This debt burden could easily be eliminated if management wanted to, and it could be done with less money. Half of the company’s annual free cash flow.
All of this strong cash flow was supported by impressive sales momentum as the company’s earnings growth rate began to accelerate. The company’s fourth-quarter revenue increased 25% year-over-year, well above the 4% year-over-year decline reported by Meta.
What about cake decorations? Meta’s 2023 total revenue increased by 16%, but operating costs and expenses increased by only 1% year over year. Let’s talk about operating leverage. This disciplined cost management as part of what management called the “Year of Efficiency” helped drive even stronger cash generation.
Meta is a cash cow. should You will have to pay dividends. Additionally, the company has the cash flow to buy back large amounts of stock and pay a quarterly dividend, which is exactly what management is doing.
meet the meta dividends
Against this backdrop, Meta announced in February a quarterly dividend of $0.50 per share, which is likely past due. This equates to $2 per year, giving Meta’s dividend yield of 0.4%.
The first quarterly dividend is scheduled to be paid on March 26 to shareholders of record on February 22.
Meta’s Chief Financial Officer Susan Lee commented on the new dividend, calling it a further extension of management’s priority of returning capital to shareholders. This is “really just a nice complement to our existing stock repurchase program,” Lee said on the company’s fourth-quarter earnings call. This will allow Meta to “add a more balanced capital return program and flexibility in how capital is returned in the future.”
Given the company’s high free cash flow and its war chest, this dividend payment is likely to increase over time. But management said it expects to prioritize stock buybacks over dividends. In fact, the company also announced in February that it had approved an additional $50 billion for stock buybacks, on top of the roughly $31 billion it had left from its previous approval at the end of 2023.
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Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. Daniel Sparks has no position in any stocks mentioned. His clients may own shares in the companies mentioned. The Motley Fool owns a position in and recommends Meta Platform. The Motley Fool has a disclosure policy.
The first edition of Meta Platform Stock’s New Dividend: Everything You Need to Know was published by The Motley Fool.
