Investing

What’s the Best Magnificent 7 Stock for Dividend Investors?

Eric Bleeker

Published: June 29, 2024 6:40 pm

In the past year, both Meta (Nasdaq: META) and Alphabet (Nasdaq: GOOGL) announced dividends. That means of the Magnificent 7 stocks, five companies now pay dividends. However, not all of the Magnificent 7 dividends are created equal. We analyze which Magnificent 7 stock has the most upside for dividend investors, and the answer may surprise you!

The Best Magnificent 7 Dividend Stock in 2024

Here is a summary of the discussion from 24/7 Wall Street Analysts Eric Bleeker and Austin Smith about the best Magnificent 7 dividend stock.

• Clearly, investors aren’t looking to the Magnificent 7 for the highest yields, they want price appreciation.
• That being said, many Magnificent 7 stocks now pay dividends, with Meta and Alphabet announcing a dividend in the past year. The question on many investors’ minds is which Magnificent 7 stock is the best dividend stock for investors to own today.
• Let’s look at the numbers in terms of dividend yield.
  • o   Microsoft is yielding .7%

    o   Apple .5%

    o   Meta .4%

    o   Alphabet .4%

    o   NVIDIA less than .1% and Amazon and Tesla don’t pay dividends.

• In terms of a commitment to its dividend, Microsoft (Nasdaq: MSFT) is number one. In the last twelve months, the company paid out $21 billion in dividends, which is up from $12.7 billion in fiscal 2018.
• Apple (Nasdaq: AAPL) pays the second-highest yield but has focused much more on repurchasing common stock. That’s been a winning move as Apple retiring shares has helped fuel share price gains, but it’s clearly a secondary strategy to its dividend.
• One suggestion that might sound a little counterintuitive is to consider Amazon (Nasdaq: AMZN) as a “dividend play.”
• Both Meta and Alphabet saw large price jumps the day after announcing their dividend. That was also the result of positive earnings, but the bottom line is Wall Street – and investors – like seeing financial discipline from tech companies.
• Amazon has historically chosen to reinvest profits back into its business via pursuing new R&D and growth projects. That clearly has worked as the company has created projects like AWS, its advertising business, and Amazon Prime.
• However, Amazon is now projected to generate more than $500 billion in cash flow between now and 2028 and has no real history of returning cash to shareholders.
• Even if they chose to aggressively spend, say $100 billion, on projects like AI infrastructure, that still leaves a massive cash pile.
• So, as perverse as it sounds, Amazon – who currently pays zero dividends – might be the best dividend play because their hand will soon be forced into announcing some return of capital to shareholders. 
• And when they do you’ll likely get a yield in the .3% or .4% range – which is similar to Meta, Alphabet, and Apple.
• And if you own Amazon stock when they make that announcement you could potentially get price appreciation from a stock jump that’s equal to years worth of dividends as well!
• All this being said, if you want to own the Magnificent 7 stock with the strongest commitment to paying dividends, then our recommendation is to own Microsoft in that case.

Transcript:

Eric, clearly investors aren’t looking to the Magnificent 7 for the highest dividend yields today.

They want price appreciation.

But that being said, many Mag 7 stocks now pay dividends.

You’ve got Meta and Alphabet announcing a dividend in the past year.

Apple, of course, famously announced a dividend in a buyback well over a decade ago, and it’s really propelled their share price higher.

So my question is, which Magnificent 7 stock is the best dividend stock for investors to own today?

Yeah, and I would note for everyone out there watching, if you’re looking at which stocks have the highest yields, this isn’t the category you’re going to want to look at, but if you look underneath Austin, we have that report at 247wallstreet.com slash dividend dash legends.

That’s a free report you can download with some companies at much higher yields.

Once again, it’s absolutely free.

It’s just a service that we provide.

I would look at these companies in terms of yield in the Magnificent Seven on just a number basis.

Microsoft is yielding 0.7%.

Apple, 0.5%.

Meta, 0.4%.

Alphabet, 0.4%.

Nvidia, less than 0.1%.

We won’t even consider it.

And Amazon and Tesla don’t pay dividends.

In terms of commitment to its dividend, Microsoft is full stop, number one.

In the last 12 months, it paid out $21 billion in dividends, which is up from $12.7 billion in fiscal 2018.

The company is committed to continuing to grow its dividend.

The only thing stopping its yield is that it continues to have so much price appreciation and share value.

Apple pays the second highest yield, but has focused more on repurchasing common stock rather than paying dividends.

That’s been a winning move as Apple retiring its shares has helped fuel share price gains, but it’s clearly a secondary strategy after its dividend.

Here is my completely counterintuitive idea to this video, which is that I might consider Amazon the company that doesn’t pay a dividend as the dividend play from this group.

I’m intrigued.

Very intrigued.

We saw both Meta and Alphabet have large price jumps after announcing their dividend.

That was also the result of positive earnings.

But the bottom line is Wall Street and investors like seeing financial discipline from tech companies.

And Amazon, they’ve historically chosen to reinvest profits back into their business via new projects or research and development that’s worked as the company created areas like AWS or its advertising business or Amazon Prime.

However, they’re now projected to generate more than $500 billion in cash flow through now in 2028, and they have no real history of returning cash to shareholders.

So if they chose to aggressively spend, you know, awesome, let’s choose a huge number here, $100 billion extra on projects like AI infrastructure and new projects, that still leaves a massive cash pile and there’s no real path to acquisitions in the current environment.

So as perverse as it sounds, Amazon, who pays zero dividend, might be the best dividend play because if you buy it, their hand is going to be forced very soon into announcing some kind of return to shareholders.

When they do, if you own it, you’ll likely get a yield in that 0.3 or 0.4 range, which is similar to Meta, Alphabet, Apple, and you also likely own Amazon at the time shares could jump on its dividend announcement, which once again, we’ve seen a past history of that from other tech stocks.

So that’s my unconventional play, but if you want the one Magnificent Seven stock with the strongest commitment to paying dividends and actually pays them right now, well, I would recommend Microsoft is the best bet in that case.

Eric, thank you so much for the unconventional recommendation here.

Just to summarize, unconventional dividend stock is Amazon, which does not yet pay a dividend.

But I love your point here, which is that when Amazon announces, as they are expected to, that they will be paying a dividend, shares could increase 4%, 5%, 6%.

Which, if you’re an investor, you need to think about this on a total return basis.

Sure, getting a 4% dividend is great.

But imagine getting all that return and more on day one simply on the dividend announcement, plus whatever yield they end up announcing, which it’ll probably be on the low side, maybe half a percent or so.

But still, if you think about this on a total return basis, which is how we recommend investors always think about their investing, Amazon might perplexingly actually be the best dividend stock to own over the next out of the Magnificent Seven over the next year.