From Nasdaq:

During the last three months of 2023, Meta Platforms (NASDAQ: META) reported a 25% revenue and 203% diluted earnings per share increase, far exceeding estimates, which caused shares to soar. In late March, the company will pay its first ever dividend of $0.50 per share. However, some fear this dividend announcement could be a mistake for the tech giant.

Dividends are typically a feature of mature companies. Meta’s peers Amazon, Alphabet, and Tesla do not pay dividends, suggesting a more aggressive growth strategy. The introduction of a dividend by Meta could be seen as a signal that it has limited growth prospects compared to its peers. However, Meta’s CFO, Susan Li, emphasized that it’s a complement to the existing share repurchase program and adds flexibility for returning cash to shareholders.

Meta is planning to spend over $5 billion on dividends in 2024, which translates to around 12% of its free cash flow last year. Despite ongoing losses in the Reality Labs division, the company’s financial position remains strong with ample resources for investment in AI-related initiatives, particularly servers and data centers. The new dividend is unlikely to undermine Meta’s competitive position.

The stock of Meta is up 289% since the start of 2023, but has a reasonable forward price-to-earnings ratio and is expected to continue to capture growth from the AI boom. The Motley Fool analyst team has not identified Meta Platforms as one of the 10 best stocks to buy now. The Stock Advisor service has outperformed the return of the S&P 500 since 2002.

Meta’s family of apps is dominant, with billions of users generating significant ad revenue. Despite concerns about introducing a dividend, Meta’s stock still looks like a smart buy given its ongoing success and prospects for the future.



Read more: Is Meta Platforms’ New Dividend a Huge Mistake?