Don’t be fooled by the meta’s dividends. Here’s a better Mag-7 stock

When you think of Magnificent Seven (Mag-7) stocks, you probably think of growth, not passive income. In fact, its relentless stock price momentum is largely known for Meta Platform (NASDAQ:META), Amazon (NASDAQ:AMZN), and other Mag-7 names.

But recently, when Meta Platform announced a passive income opportunity for investors, the market got completely excited. META stock’s 20% surge on Friday can be partially attributed to Meta Platforms’ impressive fourth quarter 2023 financial results.

But it was Meta’s first-ever dividend announcement that really grabbed the headlines. Nonetheless, before jumping on the bandwagon and buying Meta Platforms stock, consider that there may be better buys in the Mag-7 category.

One word: Paltry

It is undeniable that the meta platform showed growth in the fourth quarter. Year-over-year, Meta’s revenue increased 25%, while diluted earnings per share (EPS) increased 203%.

Additionally, metaplatform costs and expenses decreased by 8%, and headcount decreased by 22%. Therefore, CEO Mark Zuckerberg’s ‘Year of Efficiency’ plan appears to be going well.

However, value-conscious investors may not feel comfortable jumping into a stock position now. From a spooky Halloween 2022 low of around $90, META stock has risen 428% to Friday’s close of around $475, but even 203% EPS growth doesn’t seem to justify a stock price increase of this magnitude.

Now let’s talk about what everyone is talking about: dividends. Metaplatform has now paid quarterly dividends for the first time in its history.

If I were to express Meta’s dividends in one word, it would be ‘negligible’. At just 50 cents per share, and with the company’s stock price of about $475, this translates to a dividend yield of 0.1% per quarter, or 0.4% per year. If you invest $1,000 in META stock at this rate, you would get $4 in dividends if you wait a year.

Although passive income investors shouldn’t get too excited, I’ve heard people wonder whether Meta Platforms’ dividend announcement will prompt other tech companies to start paying dividends. If other companies follow Meta’s lead, they may end up paying meager dividends.

Try this Mag-7 pick instead

If you share Meta Platforms CEO Mark Zuckerberg’s vision for a solid future for the Metaverse, feel free to buy META stock. Keep in mind that Apple (NASDAQ:AAPL), another Mag-7 member, will compete directly with Meta in the Metaverse-enabled headset market.

There’s also another, better Mag-7 name to consider now. It’s Amazon. Amazon doesn’t pay a dividend, but Meta’s meager dividend isn’t particularly noteworthy.

The basic difference between Amazon and Meta platforms is that Meta provides mostly entertainment and distractions. In contrast, the COVID-19 pandemic has made it abundantly clear that Amazon’s e-commerce services are essential in certain situations.

Moreover, the Amazon Web Services (AWS) cloud computing platform is not just fun, but games like Meta’s services are also fun. Companies large and small rely on AWS, and it will undoubtedly continue to be a strong revenue generator for Amazon.

Moreover, like Meta Platform, Amazon also announced impressive fourth quarter results. Amazon’s net sales increased 14% year over year. Meanwhile, the company’s diluted EPS surged 3,233% from 3 cents in the year-ago period to $1 in the fourth quarter of 2023.

In light of these results, it’s fair to say that Amazon CEO Andy Jassy has earned some bragging rights.

“This fourth quarter was a record-breaking holiday shopping season and capped off a strong 2023 for Amazon,” Jassy said.

No dividends? are you okay!

I would have a hard time calling META stock or even AMZN stock cheap stocks at their current price ranges. Amazon’s trailing 12-month price-to-sales (P/S) ratio is 3.08, which is a bit higher than I’d like. However, Meta’s P/S ratio is 9.06, which is extreme enough to be a deal breaker.

In an ideal scenario, both stocks would decline sharply and their valuations would become more reasonable. But investors can’t just sit back and hope things happen. They have to work with what is available in the real world.

So, in the grand scheme of things, Meta’s small dividend shouldn’t be a major consideration for smart investors. Instead, pay attention to Amazon’s EPS growth, which is much greater than Metaplatform’s.

Also consider which Mag-7 stock offers a better value proposition. In the end, you may find AMZN stock a better choice than META stock, even if dividends are important to you.

disclaimer: All investments involve risk. Under no circumstances should this article be taken as investment advice or constitute liability for investment profits or losses. The information in this report should not be relied upon for investment decisions. All investors should conduct their own due diligence and consult their own investment advisors when making trading decisions.