Paying a dividend for the first time is a big deal for a giant company that has been focused on growing as rapidly as possible without worrying about sending periodic cash payments to its shareholders. So it’s a very big deal when two of America’s most valuable companies—Google-parent company Alphabet and Facebook-parent Meta—announce that they’re going to start paying dividends to their shareholders, as they’ve both done recently.
Between them, Alphabet (the nation’s fourth most valuable company) and Meta (which is No. 6 in value) will be paying more than $14 billion a year of cash dividends to shareholders. Even in these inflationary times, that’s a lot of money.
And can you guess who the biggest individual recipients of these dividends will be? The people who founded these companies.
Of course, for many years Google founders Sergey Brin and Larry Page took $1 salaries at the company, and Mark Zuckerberg has done the same at Meta, according to SEC filings, although the founders own stock worth hundreds of billions of dollars. (Zuckerberg also received more than $24 million in “other compensation” in 2023, including his personal security expenses.)
And now, as large shareholders, these tech founders will each get nine digits worth of annual cash dividends.
Granted, companies don’t generally pay dividends primarily to put cash in their founders’ pockets—but to reward shareholders (and to possibly attract some new ones).
But even for billionaires, hundreds of millions of dollars of dividends a year is nice walking-around money. Alphabet cofounders Larry Page and Sergey Brin will get $311 million and $291 million, respectively, from the company’s 80-cent annual dividend, which will pay a total of $9.25 billion a year to all of Alphabet’s holders.
Meta founder Mark Zuckerberg will be getting $691 million from Meta’s $2 annual dividend, which will pay $5.44 billion to Meta’s shareholders.
What’s more, dividends are tax-advantaged relative to regular income. The maximum federal income tax rate on dividends is 20%, compared with 37% for “earned income” such as salaries and bonuses. (Unlike salaries and bonuses, dividends aren’t tax deductible for the companies paying them.)
Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, says that beginning to pay dividends—which shareholders will expect to increase over time—is a sign of the companies’ confidence in themselves.
“Initiating a dividend is a major event,” Silverblatt told me, “and requires a strong belief that forward cash flow will cover the dividends and still permit the company to not only cover its costs, but also permit it to grow.”
To be sure, although the Alphabet and Meta dividends will generate more than $14 billion a year for shareholders, they’re not that big relative to the companies’ share prices. The dividend yield for both companies is only about 0.5%—far below the 5%-plus that money market funds are yielding these days—but it’s sure better than nothing.
In addition to putting money into shareholders’ pockets, the dividends may increase the companies’ stock prices a bit by allowing investors such as pension funds and endowments that aren’t allowed to own non-dividend paying stocks to buy them.
If you throw in two more sizable companies—Salesforce and OpenTable-parent Bookings Holdings—that also recently announced their first-ever dividends, the new dividend cash flowing to shareholders totals about $17.5 billion a year (assuming, of course, that the companies’ share counts stay the same).
The two biggest U.S. companies in market value that don’t pay dividends are Amazon and Berkshire Hathaway. There had been recent speculation that Amazon would announce its first dividend. But that hasn’t happened yet.
Berkshire is highly unlikely to pay a dividend while 93-year-old Warren Buffett, who goes to great lengths to explain his no-dividend policy, is running the show.
But even without any dividends from Amazon or Berkshire Hathaway, Howard Silverblatt estimates that absent unanticipated market changes, the companies in the S&P 500 Index will pay their holders about $635 billion of dividends this year. That’s up about 7% from last year, he says, which tops the 5.79% annual dividend growth rate since 1936.
Of course, this projected jump in dividend income doesn’t mean that stock prices won’t fall. But dividends are a nice cushion. And the combined $17.5 billion from new payers Alphabet, Meta, Salesforce, and Bookings make that cushion even more comfortable.
Disclosure: My wife and I own Berkshire Hathaway stock, which is about 2% of our total investment portfolio.