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Barron's: Facebook May Consider a Cash Dividend

Barron's: Facebook May Consider a Cash Dividend

By    |   Tuesday, 02 January 2018 07:46 AM

Facebook Inc. reportedly may be the first of the fast growing FANG stocks to pay a cash dividend to investors.

With some two billion monthly users, Facebook is pushing up against the limits of growth. The social-networking giant already dominates digital advertising, along with Google, the second of the quartet of FANG stocks, which also includes Amazon.com and Netflix.

If growth does begin to taper, you can expect investors to begin calling for new strategies—including dividends and stock buybacks, Barron’s reports.

Tech companies typically prefer to hold onto their cash, using it to invest in growth, rather than to ladle it out to shareholders, Barron’s explained.

Facebook “has a stronghold on a market that is a major cash generator,” Barron’s explained. “And, with $38.3 billion of cash, cash equivalents, and short-term investments, a dividend would be an easy way to make shareholders happy,” the report said.

Several factors make Facebook the most likely FANG candidate to offer a dividend, perhaps as early as 2019, Barron’s said. “Neither Amazon nor Netflix produce sufficient earnings to pay shareholders a sustainable dividend. And Google-parent Alphabet reiterated at an investor conference earlier in 2017 that it doesn’t intend to pay a dividend in the foreseeable future,” Barron’s reported.

If Facebook, for example, were to initiate an annual dividend of around $2 and then increase it to $3, it wouldn’t be a drag on stock or earnings, says Daniel Ives, head of technology research at GBH Insights. Such a dividend would represent a yield of about 1.5%.

For his part, Facebook Chairman Mark Zuckerberg abandoned plans late last year to create a new class of company stock with no voting power, which was meant to be a way for Zuckerberg to retain control over the company he founded while fulfilling a pledge to give away his wealth.

Zuckerberg at the time said that he could meet the charity pledge and maintain voting control of Facebook without the change. His decision followed a shareholder lawsuit opposed to the creation of a new class of stock.

Zuckerberg said in a post on Facebook that the company’s stock had performed well enough that he could fund his philanthropy by selling stock for at least 20 years and still retain voting control of the company. In December 2015 Zuckerberg and his wife, Priscilla Chan, a pediatrician, pledged to give away 99 percent of their Facebook shares to charity.

Google, now Alphabet Inc, proposed a similar stock reclassification in 2012, and court records show that Facebook’s general counsel suggested Zuckerberg could use it as a model for Facebook.

Google settled with shareholders in a deal that included a $522 million dividend, payable under certain conditions.

Withdrawing the share plan comes as Facebook faces pressure over advertisements on the social network and the role they may have played in last year’s U.S. presidential election.

President Donald Trump questioned on Friday the company’s decision to overhaul how it handles paid political ads amid investigations into alleged Russian interference in U.S. elections.

(Newsmax wire services contributed to this report).

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Facebook reportedly may be the first of the fast growing FANG stocks to pay a cash dividend to investors.
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Tuesday, 02 January 2018 07:46 AM
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