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Meta stock price soars to new record high as dividend and buyback announced

​​Meta’s latest earnings contained a pleasant surprise for investors, in the shape of a new plan to pay dividends, as well as a stock buyback programme.

Meta Platforms Source: Bloomebrg

​​​Meta stock joins the ranks of dividend-payers

​The recent announcement by Meta Platforms to initiate a dividend payout marks a significant shift in the company's financial strategy, reflecting a broader transformation within the technology sector. For years, the Silicon Valley giant, known for its dynamic growth and reinvestment ethos, abstained from paying dividends, choosing instead to reinvest its earnings back into the company to fuel expansion and innovation. However, the decision to distribute its first-ever dividend suggests a new era for Meta, one that aligns with the more traditional expectations of Wall Street and signals a message of confidence to its investors.

​Why is it important?

​The initiation of a dividend is often interpreted as a sign of a company's financial health and maturity. It indicates that the firm has reached a stage where it can generate consistent cash flows and has enough financial stability to share profits with its shareholders. For investors who have been wary of Meta's significant cash reserves, this move is a reassuring gesture that the company is committed to generating value for its shareholders.

​Meta's willingness to embrace what is seen as a more conventional approach to shareholder return also mirrors the evolving corporate culture in Silicon Valley. The tech industry, once characterized by its relentless pursuit of growth at all costs, is now showing signs of embracing a more balanced approach that also prioritizes investor returns. This paradigm shift suggests that even the most forward-thinking tech firms recognize the importance of playing by the rules of Wall Street, especially as they reach a certain scale and influence.

​The decision to pay dividends also signals confidence in Meta's strategic investments, particularly in areas like the metaverse and artificial intelligence (AI). These sectors are widely regarded as the next frontier of technological innovation, with the potential to redefine industries and consumer behaviour. By initiating a dividend, Meta is indicating that it believes these investments will bear fruit, allowing the company to maintain a balance between funding future growth and rewarding its investors today.

​How do dividends & buybacks compare?

​Dividends carry a different weight compared to share buybacks. While buybacks can increase a company's earnings per share (EPS) by reducing the number of shares outstanding, dividends are a direct transfer of wealth to shareholders. They are tangible and often viewed as a more concrete commitment to shareholder value. Moreover, dividends are typically expected to grow over time, providing investors with a potentially increasing income stream, which can be particularly appealing during periods of market volatility or economic uncertainty.

​Big Tech – the cashflow kings

​For technology companies, especially the dominant players colloquially known as 'Big Tech,' the move towards dividend payments is also reflective of their increasing cash flow and market dominance. Companies like Apple, Microsoft Corporation, and now Meta are generating cash at unprecedented levels, giving them the capacity to fund operations, invest in new ventures, and still return substantial capital to shareholders.

​The pressure for tech giants to return funds to shareholders has been mounting, especially as these companies have faced increased scrutiny over their size, market power, and influence. Dividends can serve as a tool to appease both regulators and the public, by demonstrating a willingness to distribute a portion of their wealth rather than simply accumulating it.

​For traders, Meta's dividend announcement presents new considerations. Dividend-paying stocks are often regarded as more defensive investments, offering a buffer against market downturns through regular income payments. They may attract a different type of investor, one who is looking for steady returns rather than high growth potential. This can affect the stock's volatility and trading patterns, as the investor base shifts and stabilises.

​​Moreover, the commitment to pay dividends can influence how traders view the company's future. A stable or increasing dividend may be seen as a sign of corporate confidence, potentially making the stock more attractive. Conversely, if a company cuts or suspends its dividend, it can be a red flag, signalling financial distress or a shift in strategy that may not prioritize shareholder return.

​Investing for yield

​Traders should also consider the yield, which is the dividend expressed as a percentage of the stock price. A higher yield can make a stock more attractive, but it's important to balance yield with the potential for capital appreciation and the overall health of the company. A high yield on a declining stock may not be a good investment if the underlying business is struggling.

​Meta stock enters a new era

​In conclusion, Meta's decision to pay dividends marks a pivotal moment, not only for the company but also for the broader tech industry. It reflects a maturing business model and a willingness to align with investor expectations for financial returns. For traders, this introduces new dynamics to consider when evaluating tech stocks, as dividends add an element of income generation to the growth prospects that typically characterize the sector. As the tech landscape continues to evolve, dividends may become an increasingly important factor in the investment decisions of traders looking to balance growth with income and stability.

​Meta stock price – technical analysis

​The Meta Platforms share price’s 17% after-hours share price jump has opened up a huge price gap with its early January $406.36 high which is likely to eventually get filled.

​Given the strength of the current rally, further upside towards the psychological $500 mark looks to be more likely in the short-term, though.

​Meta Platforms Monthly Chart

Meta Platforms Monthly chart Source: TradingView
Meta Platforms Monthly chart Source: TradingView

​Major support can be found between the September 2021 high and the early-January peak at $406.36 to $384.33. Were it to be revisited at some stage in the future, it would be expected to hold firm.

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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