By: Ricard
February 26, 2020
Ah Amazon…
Probably the most famous and loved company in the world. It has transformed the way we shop and has single-handedly created the e-commerce sector.
Try and think of someone you know who has never used Amazon…
Pretty hard, right?
That shows you what a behemoth Amazon is. Now, the reason you’re here is that you’re wondering whether Amazon pays a dividend.
I mean, wouldn’t it be nice if you could get a substantial dividend paycheck on top of the – hopefully – massive capital appreciation?
I.e. how much the stock price – and your investment – would grow. nice Amazon dividend sent straight to your bank account.
Ka-ching! ?
No Dividends…Yet
Well, I’ve got some good news… and also some bad ones.
Let’s start with the bad news – it’s always better to peel the band-aid quickly.
Amazon does NOT pay a dividend right now.
Sorry to be the bearer of sad news… But at the moment, the only way you’ll make money when you buy Amazon stock is by selling said stock at a profit.
This isn’t ideal, especially if you’re looking for some income that can come your way right now! So let’s have a look at how likely it is that Amazon will pay a dividend someday…
Why Tech Startups Don’t Pay Dividends (Normally)
You see, companies follow a cycle. At first, their main objective is to grow fast. As fast as possible.
Visual representation of a startup
In this growth phase, it’s vital to reinvest every dollar back into the business. This helps to buy new equipment, hire new employees, open new facilities… you get the picture. ?
This is where Amazon is right now. Reinvesting everything it makes. Adding fuel to the fire. However…
Soon it will reach market maturity – all successful businesses reach this point eventually. That’s the point where any more investment will give diminishing returns.
After that, companies don’t need every single dollar to go back into the business.
That’s where a company will start thinking…
“Hey, we’re making a lot of money here… why don’t we pay some of it to our shareholders to keep them happy?”
That is the point where Amazon needs to get to before it pays dividends! t will come eventually – the question is when.
The Apple Example
A similar thing happened to Apple. They were in growth mode for years. Decades!
They released many products that changed the playing field in the electronics market – you might even be reading this through one of those products!
But, as is normal with successful companies, they reached the point where they decided to start paying dividends. That was back in 2012.
That’s when Apple started its dividend growth streak. Ever since then, it has paid a dividend every quarter. But even better than that…
It has increased the amount it pays every single year.
In other words, Apple is a dividend growth stock.
What’s a Dividend Growth Stock?
Stocks that not only pay a dividend but grow them consistently, have been shown to beat other types of stocks in the long run.
Data Sources: Ned Davis Research
It’s like getting a pay-rise at work every single year – without having to work harder… or at all! The reason why these types of companies perform so well is because only the best can do this.
Only the best of the best – the cream of the crop – of companies are able to keep increasing their dividend every year.
Through thick and thin. Even if there is a recession, or they are earning less money during bad times. In a way, it’s like a great filter. Think about it…
If a company is able to raise its dividend for more than 10 years straight, you can be sure you have a high-quality stock on your hands!
One day, I bet you and I will be able to enjoy our Amazon dividend, but it still has some growing to do. But while you’re still here, let me give you an example of what it’s like to invest in dividend growth stocks…
Johnson & Johnson has been increasing its dividend every single year ever since 1963.
In 1972 (this is as far back as their site goes) you’d get $0.008332 per share per year… This was back in 1972.
Today, it pays $3.8 per share! Plus, there have been several stock splits since then, so the growth is even bigger than what this suggests.
To put things into perspective…
If you bought $10,000’s worth of JNJ stock back in 1972, you would’ve got 102 shares and a tiny dividend. By the way, you can check this yourself by going to their official investor’s relations site.
Today, that would have grown to a spectacular $714,705.94. (Note: this doesn’t include reinvested dividends, so the result could be so much higher!)
Plus, you’d be earning $18,623 in dividends this year. And next year it would grow even more! Because that’s what dividend growth stocks do.
Conclusion…
Amazon does not pay a dividend yet. It will probably be several more years until it does.
So while you wait for Amazon to start paying a dividend, why not start building a portfolio of dividend growth stocks.
Stocks that will grow your money AND pay you dividends every quarter.
