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 is determined by many components. 1000’s of publicly-traded corporations pay dividends to shareholders, and a few have maintained lengthy histories of elevating their dividends yearly.

Firms don’t resolve to start paying a dividend in a vacuum. There are lots of points to be thought-about earlier than returning capital to shareholders with a dividend. Nonetheless, many corporations 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, resembling price-to-earnings ratios and dividend yields) by clicking the hyperlink beneath:

Then again, different corporations don’t pay a dividend proper now and won’t for a really very long time (or ever). Firms which can be nonetheless within the early development 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 out there to develop the enterprise.

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

Associated: Dividend shares versus development shares.

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

Enterprise Overview

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

The corporate started with humble beginnings by mailing out DVDs to subscribers. Just 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 conceivable.

As well as, the corporate has spent closely on creating its personal content material, which was important to Netflix’s success at rising its subscriber base by a excessive price. The corporate additionally holds the main share of whole 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 Stay. In different nations, such because the U.Okay., Netflix holds a good bigger share of video viewing.

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

Supply: Q3 Earnings Presentation

Within the third quarter, world streaming paid memberships elevated 4.5% to simply over 223 million whereas world streaming paid internet 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 attributable to fashionable authentic programming. The addition of a cheaper price ad-supported streaming possibility is predicted to have extra of a cloth influence subsequent yr.

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

Given this development, buyers may suppose that the corporate would take into account paying a dividend to shareholders, however Netflix has not paid a dividend to this point. A part of this clarification is that the corporate remains to be not constantly worthwhile because it might 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 nearly 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 will deprive the corporate of money to put money into development and debt reimbursement. Content material prices are excessive, which is an enormous a part of why Netflix doesn’t pay dividends.

Causes For Paying A Dividend

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

Even corporations which were traditionally reluctant to pay dividends have begun to take action lately. That is notably true amongst expertise corporations, which used to spend closely to develop their companies however now have began to make use of dividends as a option to return capital to shareholders. Firms like Apple (AAPL) and Cisco Methods (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 rather comprehensible why these buyers would need corporations 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 general dividend revenue. When markets rise once more, dividends solely add to shareholder returns.

Dividends are additionally a priceless supply of revenue for retirees. Dividends might help retired buyers change the revenue they misplaced after they have stopped working. Life’s bills proceed even when individuals now not obtain a paycheck from their employer. Because of this, dividends is usually a crucial element of a retirement planning technique.

Nevertheless, development corporations 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 needed 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 business like Amazon (AMZN), YouTube, Hulu, Warner Bros. Discovery, and The Walt Disney Firm (DIS), making it seemingly 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. Firms that don’t supply constant free money circulate, like Netflix, would battle 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 development initiatives to extend its pool of subscribers.

Due to this, Netflix has didn’t generate optimistic free money circulate development on a constant foundation. The corporate expects to be free money circulate optimistic this yr and past, which is an enchancment because it often is typical for Netflix to publish destructive free money circulate.

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

This interest-bearing debt makes it way more troublesome for Netflix to supply shareholders a dividend. Primarily based on all of the above, a dividend is probably not the precise alternative for Netflix, given its funding spending and debt reimbursement stay a lot larger priorities for administration.

Ultimate Ideas

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

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

For now, Netflix has many rivals, which suggests it nonetheless wants to make use of each greenback out there to proceed to create authentic 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 can pay a dividend within the subsequent a number of years.

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