Should Google Pay a Dividend to Stockholders?

Many technology companies pay stock dividends, or regular cash distributions from earnings, to their shareholders. Alphabet (GOOGL), the parent company of Google, isn't one of them—despite pressure from investors and industry experts to pay them.

One of the reasons that investors like companies to pay dividends is that they see it as a clear sign that the company is doing well financially. Generally, companies that pay consistent dividends tend to show stable financial performance. Both the promise of a payout and the perceived stability can attract more investors, which, in turn, can create more demand for a company's stock and cause the price to rise.

On the opposite end of the discussion around dividends is the dividend irrelevance theory. It's based on a belief that the offer and payment of dividends should not impact the price of a company's stock. People who stand by this theory note that investors can sell some of their equities for cash if needed.

Proponents of Google's parent company paying dividends argue that the company has the ability to do so without affecting its financial stability and that it may only contribute to its performance. Alphabet reported a 21% increase in year-over-year revenue at the end of its quarter ended Sept. 20, 2018. In 2017, the company reported $110.9 billion in revenue, a 23% increase compared to the previous year.

Alphabet's financial performance clearly shows that it's capable of paying dividends to stockholders. The question then becomes: Why doesn't Google's parent company want to pay dividends? The answer may be found in Alphabet's mission statement. It begins:

As Sergey and I wrote in the original founders letter 11 years ago, “Google is not a conventional company. We do not intend to become one.” As part of that, we also said that you could expect us to make “smaller bets in areas that might seem very speculative or even strange when compared to our current businesses.” From the start, we’ve always strived to do more, and to do important and meaningful things with the resources we have. 

At the core of what Alphabet does is constant evolution and expansion into new ventures. This is most apparent in its Google X division, what the company calls its "Moonshot Factory." By January 2019, Google X projects that were in development included self-driving cars, balloons that bring internet service to remote areas, kites that generate electricity, and much more.

Some argue that rather than pay dividends, the company needs to reinvest its money to fund these types of projects and ensure long-term evolution and growth.

Many big companies in the technology industry do pay dividends to stockholders. Here are some of them and their dividends/dividend yields, as of Jan. 30, 2019:

• Apple Inc. (AAPL): 2.92%/1.89%
• Cisco Systems Inc. (CSCO): 1.32%/2.87%
• Intel Corp. (INTC): 1.20%/2.58%
• International Business Machines Corp. (IBM): 6.28%/4.68%
• Microsoft (MSFT): 1.84%/1.79%
• Oracle (ORCL): 0.76%/1.53%
• Texas Instruments (TXN): 3.08%/3.04%

Because of its mission to be different than conventional companies, it's very unlikely that Google's parent company will cave and pay dividends just because competitors do. But you never know—people thought that Apple would never pay a dividend, but that changed after Steve Jobs died.