Will Netflix Ever Pay A Dividend?

Up to date on December sixteenth, 2022 by Nate Parsh

Whether or not an organization ought to pay a dividend depends upon many elements. 1000’s of publicly-traded firms pay dividends to shareholders, and a few have maintained lengthy histories of elevating their dividends yearly.

Corporations don’t determine to start paying a dividend in a vacuum. There are various points to be thought-about earlier than returning capital to shareholders with a dividend. Nonetheless, many firms pay dividends to shareholders; some have even managed to pay and enhance dividends for many years.

For instance, the Dividend Aristocrats are a choose group of 65 shares within the S&P 500 which have raised their dividends for 25+ years in a row.

You’ll be able to obtain an Excel spreadsheet of all 65 (with metrics that matter, reminiscent of price-to-earnings ratios and dividend yields) by clicking the hyperlink under:

 

However, different firms don’t pay a dividend proper now and won’t for a really very long time (or ever). Corporations which can be nonetheless within the early progress section of their growth typically select to reinvest extra capital again into their enterprise as a substitute of returning it to shareholders. In spite of everything, each greenback paid out in dividends is one much less greenback accessible to develop the enterprise.

Netflix (NFLX) is a superb instance of this, as the corporate doesn’t at present pay a dividend and hasn’t because it went public in Might of 2002. This doesn’t imply that buyers ought to all the time keep away from non-dividend-paying shares.

Associated: Dividend shares versus progress shares.

Many tech shares have initiated dividend funds over the previous decade as they’ve matured and now generate robust income. Traders could possibly be questioning if Netflix will ever pay a dividend.

Enterprise Overview

With greater than 223 million members unfold out over almost 200 international locations, Netflix is a media large. Whereas Netflix does provide all kinds of second-run tv programming and flicks, the corporate additionally produces its personal unique content material.

The corporate started with humble beginnings by mailing out DVDs to subscribers. Lately, its focus has shifted to streaming companies over the web. Subscribers have entry to Netflix’s library of TV sequence, documentaries, and have movies throughout almost each style possible.

As well as, the corporate has spent closely on creating its personal content material, which was crucial to Netflix’s success at rising its subscriber base by a excessive fee. The corporate additionally holds the main share of complete U.S. TV time.

Within the fall of 2022, Netflix customers posted 221.47 billion minutes of viewing, the tops within the U.S. The corporate accounted for 7.6% of video viewing, which is 2.6x occasions that of Amazon and 1.4x that of Disney+ Hulu, and Hulu Reside. In different international locations, such because the U.Ok., Netflix holds a good bigger share of video viewing.

This resulted in large income progress over time. Netflix’s annual income greater than tripled from 2016 to2021, reaching $29.7 billion final yr. Membership progress has decelerated considerably lately, however that modified throughout the newest quarter.

Supply: Q3 Earnings Presentation

Within the third quarter, world streaming paid memberships elevated 4.5% to only over 223 million whereas world streaming paid web additions totaled 2.4 million. The corporate expects so as to add much more customers, as a lot as 4.5 million, within the fourth quarter of 2022 as a consequence of in style unique programming. The addition of a lower cost ad-supported streaming possibility is predicted to have extra of a fabric impression subsequent yr.

Earnings per share grew from $0.43 in 2016, to $11.24 in 2021. Nearly all of Netflix’s friends are comparatively new to streaming and are nonetheless constructing out their platforms. In consequence, heavy spending is predicted because the trade tries to catch as much as Netflix, which has resulted in many of the competitors not but being worthwhile. Netflix, then again, is worthwhile as the corporate generates between $5 and $6 billion of annual income.

Given this progress, buyers may suppose that the corporate would contemplate paying a dividend to shareholders, however Netflix has not paid a dividend up to now. A part of this rationalization is that the corporate continues to be not persistently worthwhile because it could possibly be. Consensus estimates for 2022 are for earnings of $10.29 per share for Netflix, representing an earnings yield of three.3%.

In different phrases, if Netflix had been to distribute just about all of its annual earnings-per-share, it could generate a 3.3% dividend yield, which after all, it could not do as a result of that may deprive the corporate of money to spend money on progress and debt compensation. Content material prices are excessive, which is a giant a part of why Netflix doesn’t pay dividends.

Causes For Paying A Dividend

Many firms pay dividends as they’re an essential a part of their capital allocation applications. Some firms, reminiscent of Dividend Aristocrats like Coca-Cola (KO) and Johnson & Johnson (JNJ), have elevated their dividends for a number of consecutive many years. In actual fact, each Coca-Cola and J&J are members of the unique Dividend Kings checklist.

Even firms which were traditionally reluctant to pay dividends have begun to take action lately. That is significantly true amongst know-how firms, which used to spend closely to develop their companies however now have began to make use of dividends as a technique to return capital to shareholders. Corporations like Apple (AAPL) and Cisco Programs (CSCO) have initiated dividends within the final decade as a result of their shareholder bases demanded a dividend, and their enterprise fashions generated constant free money circulate.

It is vitally comprehensible why these buyers would need firms to pay dividends. As inventory costs fall in a market downturn, dividends present a cushion in opposition to paper losses. In addition they permit buyers who reinvest dividends to buy extra shares at decrease costs, thus growing their total dividend earnings. When markets rise once more, dividends solely add to shareholder returns.

Dividends are additionally a priceless supply of earnings for retirees. Dividends might help retired buyers substitute the earnings they misplaced after they have stopped working. Life’s bills proceed even when folks not obtain a paycheck from their employer. For that reason, dividends generally is a crucial element of a retirement planning technique.

Nonetheless, progress firms like Netflix differ from time-tested dividend shares like Coca-Cola and Johnson & Johnson as a result of they nonetheless have to spend huge quantities of capital on content material to develop. It is a obligatory expense if Netflix plans to not simply preserve however develop its subscriber base sooner or later.

The corporate has to compete with rivals within the leisure trade like Amazon (AMZN), YouTube, Hulu, Warner Bros. Discovery, and The Walt Disney Firm (DIS), making it doubtless that spending charges will solely rise from right here. Due to this, Netflix might by no means pay a dividend to shareholders.

Will Netflix Ever Pay A Dividend?

Whereas there are definitely good causes for paying a dividend, there stay legitimate causes for not doing so. Paying a dividend requires the money circulate wanted to cowl funds. Corporations that don’t provide constant free money circulate, like Netflix, would wrestle to seek out the money to return to shareholders on a quarterly foundation.

Earnings per share are anticipated to exceed $10 in 2022. Whereas the corporate technically may pay a dividend primarily based on this, Netflix continues to make use of its money circulate on progress initiatives to extend its pool of subscribers.

Due to this, Netflix has did not generate constructive free money circulate progress on a constant foundation. The corporate expects to be free money circulate constructive this yr and past, which is an enchancment because it often is typical for Netflix to submit detrimental free money circulate.

Utilizing giant quantities of capital additionally signifies that Netflix has to entry debt markets so as to hold spending. This has impacted the corporate’s steadiness sheet, providing one other impediment to a future dividend cost. Netflix ended the newest quarter with $14 billion of long-term debt in opposition to $6.1 billion of money and equivalents.

This interest-bearing debt makes it far more tough for Netflix to supply shareholders a dividend. Based mostly on all of the above, a dividend is probably not the fitting selection for Netflix, given its funding spending and debt compensation stay a lot greater priorities for administration.

Last Ideas

How an organization allocates capital isn’t set in stone. A capital allocation coverage could be modified over time. As a progress enterprise matures, it might determine that paying a dividend is an effective use of capital. As soon as an organization reaches constant profitability, administration might determine {that a} dividend may entice new shareholders and reward current buyers.

It’s potential that Netflix may ultimately make the identical resolution that Apple, Cisco, and others did by way of a dividend, however it isn’t doubtless.

For now, Netflix has many opponents, which suggests it nonetheless wants to make use of each greenback accessible to proceed to create unique content material. And with a considerable amount of debt already on the steadiness sheet, buyers shouldn’t anticipate to obtain dividend funds from the corporate any time quickly.

For all these causes, it stays unlikely that Netflix pays a dividend within the subsequent a number of years.

See the articles under for an evaluation of whether or not different shares that at present don’t pay dividends will sooner or later pay a dividend: