Nvidia's Big Dividend Hike: What It Means for Investors
150% increase but a 0.04% dividend yield | $1 billion annual payment
This week, Nvidia made headlines with a massive dividend hike, increasing its quarterly payout by 150%, from $0.04 to $0.10 per share. This might sound like a significant boost, but there's more to the story.
The Numbers Behind the Hike
Nvidia's latest announcement marks its largest dividend increase to date, but the context is crucial. The company also declared a 10-for-1 stock split. Post-split, the dividend will revert to just $0.01 per share quarterly, which makes the headline increase seem less dramatic.
Despite the hike, Nvidia's dividend yield remains minuscule. With a stock price soaring above $1,000, the new yield is only 0.04%. Before this increase, Nvidia hadn't raised its dividend since November 2018, when the stock was trading around $40 with a yield of 0.4%.
Financial Context
Nvidia's annual dividend payments will jump from $400 million to $1 billion. While a billion dollars might seem substantial, it's a drop in the ocean for a company with a free cash flow exceeding $50 billion, projected to grow to $100 billion in the next few years.
Top-5 biggest dividend payers (annual)
Microsoft $22.3 billion
Exxon Mobil $17.0 billion
Apple $15.3 billion
JP Morgan Chase $13.2 billion
Chevron $12.0 billion
(Nvidia: $1 billion, shared for 149th place)
For comparison, Microsoft's annual dividend is a staggering $22.3 billion. To match Microsoft’s level, Nvidia would need a 20-fold increase from its current dividend payments. Even then, Nvidia's yield would only reach about 0.7%, which remains relatively low.
Nvdia is not in the top-100 biggest US dividend payers at this moment, ranking a shared 149th place with 19 other companies, including Corning, Travelers, AIG, ADM, Sysco and fellow semiconductor companies (with much smaller market caps) Microchip, NXPI and Lam Research.
Implications for Investors
What does this mean for dividend growth investors? Simply put, Nvidia is not a typical dividend stock. Its yield, even with the substantial hike, remains exceedingly low. The company's focus appears to be more on growth and reinvestment rather than returning cash to shareholders through dividends.
For those prioritizing income, Nvidia’s stock might not be the best fit. However, for investors looking at the broader picture—one of robust growth and significant capital appreciation—Nvidia continues to be a compelling choice. The dividend, while nice, is more of a symbolic gesture rather than a substantial income source.
Conclusion
Nvidia’s latest dividend hike is a noteworthy event, but it doesn’t change the fundamental nature of the stock for income-focused investors. The company’s enormous growth potential and substantial free cash flow indicate that it is better suited for those looking for capital gains rather than high dividend yields.
As always, it’s crucial to consider your investment strategy and goals. While Nvidia’s dividend hike is a positive signal, it remains a stock better suited for growth investors rather than those seeking significant dividend income.
Disclaimer: The information provided here is for informational purposes only and should not be considered financial advice. Investors should conduct their own research or consult with a financial advisor before making any investment decisions.