Alphabet first in first quarter profits

There’s been a bit of a trend in Magnificent Seven stock this year. In February meta platform (NASDAQ:META) introduced quarterly dividends for the first time ever and is now alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) followed suit.

Alphabet announced Thursday that it will pay a dividend for the first time in its first-quarter earnings report. The quarterly dividend of 20 cents per share is scheduled to be paid on June 17 to shareholders of record as of June 10.

Alphabet offers first-ever dividend

Investors should note that what Alphabet is offering isn’t a huge return by any means, since a 20-cent-per-share dividend of about $170 per share yields about 0.5%. This is well below the S&P 500’s average dividend yield of 1.5%.

But the move makes sense because it will provide investors with additional revenue or total returns, showing the company is moving into its next phase of growth. Growth stocks tend to avoid dividends because they typically invest excess capital in future growth.

So, the major players in the PC revolution, namely apologize (NASDAQ:AAPL) and microsoft (NASDAQ:MSFT) has a long history of paying dividends, but most Big-Tech names that emerged in the Internet age did not.

But about 20 years after launching, some major Internet companies are finally starting to return some of their excess cash to shareholders. Following meta, now only alphabet Amazon (NASDAQ:AMZN) and tesla (NASDAQ:TSLA) is the remaining two Magnificent Seven companies that do not offer a dividend, and many believe Amazon will do so soon, perhaps at some point this year.

Of course, investors shouldn’t expect high returns from these technology companies. Because these tech companies tend to be at the lower end of the spectrum and will probably stay that way. For example, Microsoft has a yield of approximately 0.73%, Apple has a yield of 0.55%, and Meta has a yield of 0.46%. All are well below the S&P 500 average. Dividend yield shows how much a company pays in dividends. It is expressed as a percentage of the stock price.

In addition to dividends, Alphabet approved $70 billion worth of stock buybacks.

“The core of our capital allocation framework remains the same,” Ruth Porat, Alphabet President and Chief Investment Officer, said in the company’s earnings call. “As we consider the unique opportunities we face going forward, that starts with investing aggressively in our business as we talk about it today,” she said. She said: “We see the introduction of the dividend as further strengthening our overall capital return program.”

Alphabet stock rises after strong first quarter results

The new dividend was one of the highlights of a strong first-quarter earnings report, with revenue up 15% year-over-year to $80.5 billion and net income up 27% to $23.7 billion, or $1.89 per share. Additionally, Alphabet’s operating margin increased to 32% from 25% in the same quarter a year ago.

Google services revenue rose 13.5% to $70.4 billion, which includes search, YouTube, advertising and subscriptions. The cloud business recorded a 30% increase in revenue to $9.6 billion.

For the full fiscal year, Alphabet expects to expand its operating margins compared to last year’s margins and continue to make quarterly investments in capital expenditures above the $12 billion it spent in the first quarter. The capital will be used to upgrade our technology infrastructure to reflect the opportunities we see in AI across our business.

“Our first quarter results reflect strong performance in Search, YouTube and Cloud. We are well underway in the Gemini era and there is great momentum throughout the company. Our leadership in AI research and infrastructure and our global product footprint position us well for the next wave of AI innovation,” CEO Sundar Pichai said in the earnings report.

Analysts are optimistic

Analysts were optimistic about Alphabet’s earnings report. That’s because it’s received roughly a dozen price target increases, including one from Barclays, which raised its target to $200 per share. Alphabet is currently trading at around $170 per share.

According to CNBC, analysts at Barclays wrote in a research note last week: “Google is optimally positioned to accelerate growth and deliver products faster while expanding margins and returning capital. It’s basically proven the naysayers wrong.” I wrote: “Momentum will remain strong here for some time.”

Alphabet stock is up about 22% year to date and is trading at a relatively low valuation of 25x, well within its recent range and below the Nasdaq 100’s average P/E multiple. So Alphabet looks like a solid buy right now.