Meta’s New Dividend Lures Value Investors - InvestingChannel

Meta’s New Dividend Lures Value Investors

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Meta’s New Dividend Lures Value Investors

In 2022, Meta Platforms’ (META) stock was in freefall.

We said we wanted to own it.

The stock is up almost 325% since then, and we still like it.

Meta wowed investors when they beat the high water market for earnings and revenues.

Financial pros kept searching for the stock well after it reported earnings, focusing specifically on Meta’s new dividend, according to our TrackStar data.

Now, a $0.50 dividend on a $400 stock might not seem like much. 

But we’ll explain why this is a game-changer for the stock.

Meta’s Business

Facebook rebranded as Meta when CEO and founder Mark Zuckerberg decided to plow money into the ‘Metaverse.’

The online virtual ecosystem has lost a lot of its luster. But Meta’s core business, Facebook, is running strong.

Meta breaks out its business into the Family of Apps (98% of revenues), which includes Facebook and Instagram, and Reality Labs (2% of revenues), which encompasses its Oculus VR platform.

At the surface, everything Meta reported looks phenomenal, with revenues per user up across the board.


Source: META Q4 2023 Earnings Presentation

However, the picture isn’t as rosy if you look deeper into the user activity.

Active users


Source: META Q4 2023 Earnings Presentation

Meta’s user growth in Europe is on the decline, while the U.S. and Canada barely budged. 

That’s a problem, considering these are the highest revenue-per-user markets, with the former at $68.44 per user and the latter at $23.14. Everywhere else is $4.50-$5.52.

To Meta’s credit, they’ve done what they said in cutting expenses over the past two years.


Source: META Q4 2023 Earnings Presentation

This helped Meta achieve record cash flows, enabling them to institute its first-ever dividend.

So, why is this such a big deal?

We’re seeing value and income investors looking at the stock, according to our TrackStar data, which often happens when a company starts issuing a dividend.

We expect this will add a long-term floor under the stock, giving shareholders a level of safety to own against.



Source: Stock Analysis

Financially, Meta is doing amazing.

Other than 2022, it’s put up double-digit revenue growth every year.

Although margins have declined as the company ventured into new businesses, its free cash flow improved dramatically as expenses dropped.

Meta generated $44 billion in free cash flow in 2022 alone, over $17 per share. Operating cash flow reached an astounding $71 billion, although the company guided for slightly higher capex in 2024.

Effective in March, the $0.50 dividend per share is on top of the $50 billion stock buyback program and comes to an annual yield of about 4.5%.



Source: Seeking Alpha

With the latest run, Meta’s stock is in line with Google (GOOGL) on a price-to-cash flow basis, and in the ballpark on a price-to-earnings ratio.

Social media companies like Snap (SNAP) and Pinterest (PINS) are more expensive as they’ve struggled to balance growth and profitability.

Baidu (BIDU) is a much cheaper alternative. However, as a Chinese company, it trades at a significant discount.



Source: Seeking Alpha

Although Meta and Google’s valuations are comparable, Meta’s been able to put together higher revenue growth in the short term.

While Google isn’t doing poorly, it’s not achieving the level of success it once had.

Other social media companies have also been struggling, as advertising spending hasn’t returned to pre-pandemic levels in many sectors.



Source: Seeking Alpha

The big draw for Meta is the one-two punch of its revenue growth and margins.

It delivers the highest in every category while only trailing Google sightly in returns on assets and total capital.

Our Opinion 7/10

While we love Meta, we don’t believe it is immune to the soft advertising spending hitting Google and other companies.

Shares have gotten ahead of themselves, even if they are reasonably priced.

However, we don’t expect as much share volatility going forward now that they’ve begun issuing dividends.

So, don’t expect the same pullbacks we saw in the past few years. Take advantage of opportunities as they arise.

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