Investors losing out on billions as tech equities don't pay dividends
Saturday, 7 October 2017
NEW YORK, Oct 6: Investors are missing out on billions of dollars, thanks in part to some large-cap tech stocks, reports CNBC.
If Alphabet, Amazon and Facebook (along with Berkshire Hathaway) paid shareholder dividends at the 2.37 per cent average yield of other S&P 500 companies that do so, it would shake out another $32.2 billion for investors, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
Those hypothetical payments would increase the S&P index's overall yield by 7.6 per cent, he said.
Investors pick dividend-yielding stocks because they typically have safer returns, unlike more glamorous high-flying tech stocks.
Tech stocks have had a long history of either paying small dividends or none at all.
"During the 1990s, tech didn't typically pay dividends and they drove the stock market back then," said Kim Forrest, senior equity analyst at Fort Pitt Capital. "Back then, companies were telling people they were going to take their earnings and reinvest them because they needed to grow. This still holds true."
Tech has been far and away the best-performing sector in the S&P 500 this year, rising 27 per cent. The sector's gains have also been a key catalyst for the overall market, which continues to notch record highs.
The S&P tech sector had a dividend yield of 1.36 percent during the third quarter, the lowest of the 11 sectors and well below the overall S&P 500 of 1.97 per cent, according to Silverblatt.
"There has been a disdain for dividend in tech companies because it suggests that companies don't have anywhere else better to invest their money," said Scott Kessler, a tech analyst at CFRA. "It also raises concerns that the growth trajectory of a company could be in trouble."
Kessler also pointed out that Microsoft - once the stalwart of the tech world - saw its stock take a hit after declaring its first dividend payment in 2003.
Between January 17 and March 11 that year, Microsoft saw its shares fall 11.4 per cent.