Well, this quarter confirms that Google is still “the” company to watch. As far as dividends are concerned, Google is in an interesting position. The stock price has been increasing and bringing smiles to shareholders, but it’s obvious that Google Inc (NASDAQ:GOOG) can provide a lot more.
Google’s fight over the past few decades
It’s funny, a lot of people see Google as a page with its logo fetching all sorts of information. Well, Google is now much more than just a search engine; it’ll probably replace the word Internet very soon.
Google has held its competitors at bay and it still has a few more tricks up its sleeves. In the technology sector, Google is the company to watch out for as far as dividends are concerned. Google’s been able to reward its investors with an increasing share price over the years, but I’m sure its management is capable of much more.
Experts say that Apple Inc. (NASDAQ:AAPL) is the biggest threat to Google Inc (NASDAQ:GOOG). To be honest, the number of products Apple Inc. (NASDAQ:AAPL) has managed to sell would not pose that big of a threat. Google’s revenue is primarily through advertising. No matter how many iDevices Apple Inc. (NASDAQ:AAPL) manages to sell, Google is only bothered about users relying on its services being used.
Though Apple has tried to knock off Google-run apps on its devices, users still prefer to download and use Google-driven apps such as Gmaps and YouTube. At the end of the day, the higher the number of iDevices being sold only makes it better for the Internet giant.
Facebook Inc (NASDAQ:FB) is said to one day dominate search with the amount of user data it has. The problem is that users must be logged into Facebook if they want to make use of a Facebook-driven search system. Facebook Inc (NASDAQ:FB) has still not managed to get a default search engine encrypted into any Internet browser.
Facebook Inc (NASDAQ:FB) has not received even the slightest of competition from Google+, but to challenge Google Inc (NASDAQ:GOOG) in terms of day-to-day Internet search still seems like an uphill task. This is perhaps the only major concern for Google in the near future. Experts say that Facebook is still a buy because of the fact that the company remains the biggest reservoir of data and that it would exploit that advantage soon.
Enough jibber jabber! Let’s talk numbers
With the stock price increasing, all Google seems to be doing is investing in new technologies. It won’t be long until Google starts rewarding its investors with dividends.
Here’s why:
A company’s core operating cash flow would help us determine whether it would be able to pay dividends. In the present quarter, Google reported an increase of 20% in its core operating cash flow, whereas Microsoft’s increased by 21%, Apple’s decreased by 0.9% and Facebook is at a negative growth figure.
It’s not just growth in cash flow that matters; we also have to take into consideration free cash flow. Google managed to generate $2.7 billion of core free cash flow. Keeping this figure in mind, Apple has managed a payout ratio of 26.5%, Microsoft has managed 31.6% and Facebook still hasn’t paid dividends, just like Google.
Google should be able to maintain an average payout ratio of 28% when compared to the figures of Apple and Microsoft. With $2.7 billion in cash flow, an estimated $786 million would be available as dividends in a quarter. Keeping in mind that Google Inc (NASDAQ:GOOG) has 300.4 million shares outstanding, the company would be able to afford $9.50 as an annual dividend. As of now, the stock is trading higher than $815, which would mean a 1.1% yield.
Verdict
Though Apple as of now has lifted its dividend, the company did keep its investors happy for a pretty long time. Apple might be saving up for an acquisition to get back in the game, but for Google things are the other way round. Google still has a lot of work to be done on its recent acquisitions, such as Motorola Mobility .
Google Inc (NASDAQ:GOOG) has $48 billion in net cash, a hefty amount for any company. Though the company is growing, it doesn’t seem to be retiring shares. Paying investors would help the company to maintain its “alpha” company status. Let’s face it Google, it’s about time now.
The article Will Google Reward Investors Soon? originally appeared on Fool.com and is written by Ashley Sales.
Ashley Sales has no position in any stocks mentioned. The Motley Fool recommends Apple, Facebook, and Google. The Motley Fool owns shares of Apple, Facebook, and Google. Ashley is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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