2024.05.20 00:20
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An Amazon Dividend Could Boost Its Stock By $200 Billion

Amazon is considering issuing a dividend due to its projected increase in free cash flow over the next few years. This decision could significantly impact the stock's value, as seen with other companies such as Meta and Alphabet. With expected cash flow of over $500 billion, Amazon will need to decide how to utilize this money, either through share repurchases or dividends. This move could potentially lead to a share price increase of 10% or more in the near future.

Amazon (NASDAQ: AMZN), known for its growth-at-all-costs financial discipline, might benefit from issuing a dividend, similar to recent moves by Meta (NASDAQ: META) and Google (NASDAQ: GOOGL). Discover the case for why an Amazon dividend is likely coming sooner than later below!

Why Amazon Is Likely to Start Paying a Dividend Soon


Amazon currently has a net debt (cash holdings minus debt) of about negative $80 billion. However, that situation looks set to change when you follow their projected cash flow in coming years. Across the next five years, Amazon’s projected free cash flow is expected to soar from $62 billion this year to $142 billion in 2028.

Add all those years up, and Amazon would produce more than $500 billion in free cash flow. In addition, even if Amazon scaled up capital expenditures faster than expected to capitalize on trends like artificial intelligence spend, it’s unlikely the company would produce less than $400 billion in cash flow in total.

The key point here is that Amazon is going to need to do something with that money! One option that Amazon has used cash flow on in the past is buying companies, but with regulators across the world blocking major deals, it’s unlikely the company can use much of its cash flow on acquisitions. A more likely path is that Amazon can either begin actively repurchasing its shares or issuing a dividend.

Share repurchases have been the preferred route Apple has chosen. The company repurchased $417 billion worth of shares from 2019 to 2023 and just announced another major share repurchase plan. In reaction, its shares jumped the day after the repurchase announcement.

Another path would be to issue a dividend. Both Meta and Alphabet recently announced dividends alongside earnings releases, and both companies saw massive share gains the next day.

The bottom line here is that Amazon choosing what to do with the massive amounts of cash it’s set to generate in upcoming years is a major catalyst for the stock. Judging by the recent reactions from Apple, Meta, and Alphabet after announcing major share repurchasing or dividend programs, it’s likely Amazon releasing solid earnings alongside returning capital to shareholders could lead to a share price jump of 10% or more in the near future.

Video Transcript:

Okay, Eric, let’s shift gears a little bit to another AI darling, but also an advertising marketing darling, a retail darling, the everything company right now, Amazon.

What would happen with an Amazon dividend and what could it do to the stock right now?

Meta recently announced that it was going to start paying a dividend. So there definitely appears to be a changing of these guards, changing of the tone, rather, where these sort of growth at all costs, let’s build for the future tech companies are now starting to become so profitable that they’re shifting into a more mature state as a stock and paying dividends.

So let’s look at Amazon in the context of dividends. What could happen?

Yeah, it’s interesting because so much of the share price of technology stocks, the biggest ones, used to just be, as you know, growth, growth, growth. But we’re starting to see decisions made by the CFOs really impact the price of stocks.

So in the case of Amazon, I’m going to pull up their projected free cash flow over the next five years.

It’s $62 billion this year, $79 billion the year after, then $102 billion, $117 billion, and $142 billion by 2028.

Again, these are projections, but combined that totals up to more than $500 billion. And even if Amazon were to make larger investments, let’s say in AI chips, you know, Jeff Bezos, he’s never been afraid to push the company to make big investments that are in the short term, but work on the long run, they’re still going to likely make more than $400 billion in free cash flow.

So what are they going to do with all this money is the question, because Amazon, they tried building a robotic vacuum company, and that was blocked by regulators.

They tried buying, not building.

And we’re talking about the incredible antitrust sideswipe that was Amazon trying to buy iRobot.

Yeah, correct. So it’s just, there’s not going to be any major acquisitions in this environment, I believe. There are two paths. One, you can buy common stock or you can issue a dividend.

Apple across 2019 to 2023 repurchased $417 billion of its common stock.

Microsoft repurchased $125 billion while also paying $83 billion in dividends.

My preferred path for Amazon is would be to issue a dividend because as you allude to at the beginning of this segment, we saw Google and Meta both announce dividends alongside great earnings and saw reactions of 15% plus to their stock.

So I think for Amazon, if you’re a shareholder, there’s a catalyst embedded in this stock right now that if they paired an earnings release with the announcement, you could see them move up to 10%, potentially even more on this news because investors are waiting for clarity in this environment. And that could add $200 billion to its share price.

So there are a lot of reasons to own Amazon. And one of them, I believe, this dividend is coming sooner than later.

And, you know, Eric, if you think about the way that that repositions the company, it makes them eligible for a lot more buying from any sort of income-focused mutual fund. I’m not quite going to say pension funds, but anybody that is focusing on income, not just at the retail level, but at the ETF or at the mutual fund level, suddenly, you know, Amazon now gets put on the table as an eligible investment.

And we’ve seen what happens.

Incredible runs Apple has put up since paying their dividends. So it became more broadly interesting to investors, including institutions, just really puts a lot of buying pressure on the upside.

Yeah, without question.

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