AP
- Mark Zuckerberg's Meta declared its first dividend and another $50 billion in approved buybacks.
- The social-media giant may just be a cash cow, but it risks signaling its growth is slowing.
- Warren Buffett has flagged the downsides to paying a dividend, and railed against bad buybacks.
Meta announced its first dividend and another $50 billion of authorized stock buybacks in its fourth-quarter earnings on Thursday. The social-media giant is clearly eager to reward its shareholders, but its latest moves could divide investors.
Combining a quarterly dividend with ongoing share repurchases creates a more balanced and flexible capital-return program, Meta's finance chief, Susan Li, said on the call.
It also signals that the company is generating so much cash, and pursuing such a promising strategy, that it can afford to hand money to shareholders without compromising its future growth.
"The initiation of dividend payouts and the massive share buyback program serve as a clear indication that Meta is confident in the profitability of its metaverse and AI ventures," Nigel Green, the CEO of financial advisory DeVere Group, said in a note.
Metaverse dreams
However, paying a dividend can also signal a company has become staid and mature, and no longer intends to spend aggressively to disrupt markets or invent groundbreaking technologies, so it sees no better use for its spare cash than returning it to shareholders. Several of Meta's tech peers including Amazon, Alphabet, and Tesla don't pay a dividend.
Meta is investing heavily in new areas like the metaverse; it has poured upwards of $50 billion into its Reality Labs division since 2020, and shows no signs of stopping.
It's no slouch on the growth front either, given revenues surged 16% to $135 billion last year, and operating profits jumped 62% to $47 billion, even as it slashed headcount by 22% to about 67,000 employees.
The owner of Facebook, WhatsApp, and Instagram also ended the year with a massive $65 billion in cash, stocks, and other relatively liquid assets. It might simply make so much money that it can fund all the growth ventures it wants, and still have plenty left over.
Payouts vs long-term gains
Even so, not all investors are fans of dividends. Warren Buffett's Berkshire Hathaway doesn't pay one, as the legendary capital allocator believes he can put any spare profits to better use.
Buffett has also noted that dividends tend to be taxed at higher rates than capital gains, and he prefers to let his stockholders decide when to sell their shares and incur tax liabilities. Moreover, he wants to attract investors who are focused on long-term gains in Berkshire's value, not quarterly payouts.
As for buybacks, Buffett has repeatedly emphasized they're only worthwhile if a company's stock is trading at a discount to its intrinsic value.
Meta shares have more than tripled since the start of last year and now trade at record highs. Yet Zuckerberg and his team repurchased $20 billion of stock last year and have secured approval to buy back another $81 billion worth, suggesting they still believe it's undervalued.
True, Buffett has championed Apple's buybacks for raising Berkshire's stake in its biggest holding at no cost to the company. He also welcomes the hefty dividends that his company receives from Coca-Cola, Chevron, Kraft Heinz, and other portfolio holdings. But he's only a fan of those types of returns when they make financial sense.
Meta's new dividend and large-scale buybacks are intended to show it values its shareholders and wants to reward them. But investors may see them as a signal that the company's best days are behind it, and not the best use of money.