Hey there! If you’re an investor exploring your options in the stock market, you may have come across Amazon and wondered – does this giant of a company pay dividends?
It’s a fair question. Dividend stocks are popular picks for good reason. Who wouldn’t want to collect passive income from their investments?
But not every stock operates that way, including Amazon. Its lack of dividends may give some investors pause.
Well, don’t stress if you’re on the fence about Amazon stock. In this guide, we’ll unravel why Amazon doesn’t do dividends, what it means for your portfolio, and whether it’s still a smart buy.
Grab your favorite beverage, get cozy, and let’s unpack this dividend dilemma together!
Understanding Dividends: A Crash Course
Before we dive into Amazon’s policies, a quick refresher on dividends can’t hurt.
In short, dividends are cash payments that companies make to shareholders as a way to share their profits. Many established, stable companies issue dividends on a quarterly basis.
Investors love dividends for good reason. They provide a steady stream of income you can use or reinvest back into more shares. Dividends are tangible – it’s cash in your pocket.
Now, the size of the dividend depends on the company’s profits that quarter and how generous its dividend policy is. Mature companies tend to offer bigger dividends, while growth stocks often forego them entirely. More on that later!
For a real world example, let’s look at Procter & Gamble, a household name that’s paid dividends since 1890. If you bought $10,000 worth of PG shares today with its 2.6% dividend yield, you’d earn around $260 per year in cold hard cash. Not too shabby!
And over time, those dividend payments compound as you accumulate more shares. It’s a prized aspect for income investors.
But it’s not just about the income. Dividends signal financial health and stability in a company. If profits sink or instability brews, dividend payments often take a hit. Management will think twice about cutting a dividend since it disappoints shareholders.
So when you’re comparing dividend stocks, higher yields can seem attractive. But don’t chase yields alone – make sure the underlying business is solid.
OK, Dividend 101 crash course complete! Time to turn our attention to Amazon.
Inside Amazon’s Strategy: Innovation Over Dividends
Amazon has been delighting consumers for over 25 years, but it operates much differently than dividend stalwarts like P&G.
Rapid innovation, entering new markets, and delivering value for customers are deeply rooted in Amazon’s DNA. And its key pillars continue that tradition…
Retail Dominance – Amazon’s online storefront is its bread and butter, raking in 63% of total sales. It has fine-tuned ecommerce into a science, delivering speed, selection, and convenience no one can match. Think: Prime shipping, seamless returns, and a vast marketplace of vendors.
Cloud Supremacy – Amazon Web Services (AWS) is its most profitable segment, commanding 33% of the cloud infrastructure market. Companies rely on AWS for hosting, storage, analytics, and more. While cloud adoption rises, AWS ensures Amazon owns this next frontier.
Forays into New Markets – Amazon continually enters new verticals like healthcare, groceries, streaming entertainment and more. Alexa and Amazon Prime unlock new opportunities. Criticize the approach as overreach, but no one can claim Amazon rests on its laurels.
With this thirst for expansion, profits get channeled right back into the business. Acquisitions, R&D, capital expenditures – Amazon funnels billions to fuel growth.
And its track record justifies this strategy. Since 2006, Amazon plowed all profits into expansion. No dividends filled shareholder pockets. Yet its stock still averaged 27% annual growth over that stretch – a mind-blowing pace.
Shareholders didn’t complain while enjoying this meteoric rise. And even in a challenging 2022 economy, Amazon’s stock is outpacing over 70% of S&P 500 companies.
For management, this performance confirms dividends aren’t needed to reward shareholders. As famed CEO Jeff Bezos wrote, “We prefer to focus on achieving long-term, high returns on invested capital and letting our shareholders benefit from that approach over the very long term.”
In Amazon’s eyes, reinvesting to stay on the cutting edge rewards investors far more than dividends alone. And given its dominant position, it’s hard to fault that view.
Life Without Dividends – Is There a Downside?
Alright, no dividends from Amazon stock – not exactly shocking. But how should investors interpret this approach? Does it make Amazon less appealing than dividend payers?
Well, it depends who you ask! Income investors have a right to be wary. But appreciation focused folks may see dividends as an afterthought.
Let’s unpack both perspectives:
The Cons of No Dividends
For income investors, dividends are everything. The lack of payouts does make Amazon less attractive in their eyes. After all, you sacrifice substantial dividend income owning Amazon versus traditional dividend payers.
And the absence of dividends provides fewer opportunities for compounding. Income investors love reinvesting dividends to accumulate additional shares. No such luck with Amazon.
There’s also the principle that dividends provide “cash in hand” versus just paper gains. In volatile markets, dividend stocks often hold value better than non-payers.
Lastly, some view the lack of dividends as a sign of instability or financial strain. Butgiven Amazon’s dominant position, that’s clearly not the case here.
The Pros of Amazon’s Approach
On the flip side, investors focused on growth and appreciation may overlook the lack of dividends entirely. And it’s tough to blame them.
After all, Amazon plows profits into moves that expand its reach and unlock new opportunities. Take the $13.7 billion acquisition of Whole Foods. Expensive upfront, but it provided invaluable entry into groceries and physical retail.
Or the $22 billion spent annually on R&D. That funds cutting edge tech for web services, logistics, cloud computing and future products we can’t even envision yet. Pretty appealing, right?
And investors have seen this strategy pay off handsomely in stock growth over the long run.
Plus, dividends don’t always indicate stability. If profits stumble, those dividend payments get cut, disappointing shareholders. See General Electric.
For Amazon, innovation and expansion drive shareholder value. And its dominant position provides stability dividends aim to signal.
So where does this leave us? Should Amazon’s lack of dividends deter you? Or is it still a buy?
In truth, there’s no right answer – it hinges on your investing approach and goals. But here are a few parting thoughts:
- Income investors should look elsewhere or own Amazon sparingly. Dividend stocks better serve your need for income and compounding.
- Appreciation focused folks can overlook dividends. Amazon’s track record justifies plowing profits back into the business. Stay patient and keep the long term picture in mind.
- Don’t view dividends as the only sign of stability and financial health, especially for growth stocks like Amazon. Look at the underlying business.
- A diversified portfolio combining dividend payers and non-payers makes sense for many investors. Cover your bases!
And keep in mind, Amazon’s dividend policy could always change down the road. Once growth slows and reinvestment options narrow, dividends enter the chat. But that day seems far off.
So don’t let the lack of dividends deter you outright. Weigh Amazon’s incredible track record, leadership position, and prospects against your investing preferences. Strike the right balance for your portfolio.
Hope this provided clarity on what to make of Amazon’s dividend policy! Please reach out with any other questions. Talk soon!