Alphabet Changes the Narrative with Its First-Ever Dividend

Key Points

• Alphabet stock is surging in the pre-market after the company delivered a double beat and announced its first-ever dividend. 
• The report is allowing Alphabet to change the narrative after a rough first quarter that had investors questioning the company’s leadership in AI. 
• With analysts bidding the stock higher, GOOGL will likely recover its $2 trillion market cap. 

Alphabet Inc. NASDAQ: GOOGL got a much-needed win from its first-quarter earnings report. Shares of GOOGL stock are up more than 11% in pre-market trading after the tech giant announced its first-ever dividend and expanded its share buyback program to $70 billion. 

The 20 cents per share dividend will be paid on June 17 to holders of record on June 10. The dividend will apply to all three of the company's share classes. If projected over a full year, the dividend will have an 11% payout ratio based on current earnings estimates. That's comparable to the dividend paid by Apple Inc. NASDAQ: AAPL. 

Alphabet is the latest "big tech" company to take steps to be more shareholder-friendly. In 2023, Meta Platforms Inc. NASDAQ: META proved to investors that it could be more disciplined in its spending and prioritized earnings.  

Earnings have not been a problem for Alphabet, and the same was true in this earnings report. The company reported $1.81 in earnings per share (EPS), a 26% increase from the $1.56 expected and a 54% year-over-year increase. 

Changing the Narrative 

The first quarter of 2024 has been an eyesore for Alphabet. The company debuted its Gemini generative AI model to criticism when the model produced historically inaccurate images.  

Beyond any concerns about the company's intentions, the controversy raised legitimate questions about Alphabet's leadership among artificial intelligence stocks as it competes with Microsoft Corporation NASDAQ: MSFT, which is backing OpenAi and its ChatGPT model.  

However, on the conference call, Alphabet highlighted its leadership in both research and infrastructure as it relates to AI and the fact that AI plays a fundamental role in all of its core businesses. As evidence of that, the company announced that it will be increasing its capital expenditures (capex) on its AI infrastructure. 

The company also faces scrutiny from the U.S. Department of Justice (DOJ) which is investigating whether the company has abused its power in negotiating lucrative contracts to give its search engine an advantage over rivals. 

Walking and Chewing Gum at the Same Time 

Alphabet is showing investors that, like Meta, it can continue to invest in growth while taking cost-cutting initiatives that are boosting operating margins and free cash flow (FCF). In turn, they are returning those savings to shareholders. 

Part of the company's cost-cutting is coming out of its moonshot programs. Does this mean that Alphabet is abandoning these programs? Probably not. But in 2024, it's an acknowledgment that even growth companies will have to give investors a reason beyond an outlook for future growth to keep them interested. 

Back to $2 Trillion 

In pre-market trading, GOOGL stock is trading at nearly twice its average volume. If the stock continues to build on this momentum, it's likely that Alphabet will once again pass the $2 trillion mark for market capitalization.  

Since the report was released, MarketBeat has shown that seven analysts have increased their price targets on GOOGL stock. Each target is far above the current consensus target, which will undoubtedly move higher.