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Can Facebook Afford A Dividend That Yields 1% In 2022?

14 Wall Street. Source: Flickr

This article explores the question of whether Facebook can afford to pay a dividend that yields at least 1% in 2022 and possibly 2023.

Before answering the question, let’s take a quick look at Facebook’s dividend history and policy.

For your information, Facebook has never declared or paid any cash dividends since its IPO in May 2012.

Here is an excerpt regarding Facebook’s dividend policy extracted from the company’s 2021 annual report:

  • Dividend Policy
    We have never declared or paid any cash dividend on our common stock.

    We intend to retain any future earnings to finance the operation and expansion of our business and fund our share repurchase program, and we do not expect to pay cash dividends in the foreseeable future.

Therefore, Facebook has been a non-dividend-paying stock.

Investors who have bought or are planning to buy Facebook’s common stocks can only gain from the price appreciation of the common stocks.

However, this does not rule out the possibility of Facebook paying a cash dividend in the future since the company has been profitable and generating tonnes of cash.

In fact, the chance for Facebook to pay out a cash dividend in the near future is very real given that the company has already been returning tonnes of capital to investors in the form of shares buyback.

In this article, we will explore Facebook’s fundamentals to find out if the company can afford to pay a dividend that yields at least 1% or maybe more in 2022 and 2023.

Let’s take a look!

Facebook’s Dividend Payout

Facebook’s Stock Price ($ USD) Dividend Per Share That Yields 1% ($ USD) Common Shares Outstanding (In Billion) Estimated Cash Payout ($ Million)
$145 $1.45 2.7 $3,915

* Facebook’s estimated dividend payout comes from the author’s own calculation.
* Facebook’s fiscal year begins on Jan 1 and ends on Dec 31.

To find out how much Facebook needs to pay for a dividend that yields 1%, we will need to do some reverse-engineering on Facebook’s financials and start from its stock price.

To this end, Facebook’s stock was traded at around $145 at the time this article was written.

Therefore, for a 1% dividend yield, Facebook’s cash dividend per share will amount to about $1.450 USD.

Facebook has about 2.7 billion shares outstanding based on the latest 2Q 2022 quarterly filing.

Therefore, Facebook’s estimated total dividend payout will amount to nearly $4 billion as shown in the table above.

This amount is the total cash outflow for Facebook’s dividend payout.

Moreover, these estimated figures are on the high side as the actual figures will be a lot lower due to the share repurchase program that the company has been carrying out.

For your information, Facebook’s share repurchase program started in 2017 and does not have an expiration date. As of June 30, 2022, $24 billion remained available and authorized for repurchase, according to the 2Q 2022 10Q report.

Nevertheless, keep reading to find out how this cash outlay translates to the dividend payout ratio.

Facebook’s Revenue And Earnings Estimates For 2022 And Beyond

Fiscal Year Revenue Estimate – Average ($ Billion) Revenue YoY Growth Rate (%) Earnings Estimate – Average ($ USD) Earnings YoY Growth Rate (%)
2022 $118 0% $9.87 -28%
2023 $130 10.1% $11.08 12.3%

* Facebook’s revenue and earnings estimates are obtained from Yahoo Finance.
* Facebook’s fiscal year begins on Jan 1 and ends on Dec 31.

According to Yahoo Finance, Facebook’s revenue estimates are expected to come in at $118 and $130 billion USD for fiscal years 2022 and 2023, respectively, based on the average estimates of 50 analysts.

Similarly, Facebook’s earnings estimates are expected to come in at $9.87 and $11.08 USD for fiscal years 2022 and 2023, respectively, based on the average estimates of 50 analysts.

The growth represents about 10% for revenue and 12% for earnings in fiscal 2023.

However, the 2022 figures are in the negative growth category, particularly for the earnings estimate.

While Facebook has been embroiled in a lot of negativities lately, I believe these targets are highly achievable for a company that generates massive profit and cash flow.

That said, using these estimates, we can calculate Facebook’s free cash flow.

We use the free cash flow because dividends are paid out of cash instead of earnings.

To calculate the free cash flow, we have to account for spendings such as capital expenditures.

Let’s move on.

Facebook’s Free Cash Flow Estimate

Facebook free cash flow estimate

Facebook free cash flow estimate

* Facebook’s free cash flow is calculated based on the difference between the company’s net cash from operations and total spending.
* Facebook’s capital spending includes purchases of property and equipment, principal payments on finance leases, purchases of equity investment, and acquisitions of businesses, net of cash acquired, and purchases of intangible assets.

A discussion of dividends will be incomplete without involving free cash flow as dividends are paid out of cash.

Therefore, it is extremely important to look at the cash flow when it comes to dividends.

In this discussion, we will estimate Facebook’s free cash flow for fiscal 2022 and 2023 based on the average revenue estimates that we discussed in prior paragraphs.

According to the table above, Facebook’s total spending consists of several items such as the purchase of properties and equipment, business acquisition, lease payments, etc.

The free cash flow is calculated based on the difference between operating cash flow and the total spending as shown in the table above.

As a result, Facebook’s free cash flow is averaged at around $27 billion between 2017 and the latest TTM figure.

In terms of free cash flow margin, the average figure equals about 27% for the same period.

Keep in mind that the free cash flow margin calculated here has already accounted for Facebook’s spending on business acquisition and equity purchases in addition to the purchase of properties and equipment.

Based on the 27% free cash flow margin, Facebook’s estimated free cash flow figures arrive at $31.9 billion and $35.1 billion for fiscal 2022 and 2023, respectively.

Again, these figures are highly achievable given that the company has already generated more than $30 billion of free cash flow based on the latest TTM (trailing 12-month) result.

In short, Facebook is estimated to generate more than $30 billion of free cash flow for fiscal 2022 and 2023, respectively.

Facebook’s Dividend Payout Ratio For 1% Yield

Fiscal Year Estimated Cash Payout For 1% Yield ($ Millions) Estimated Free Cash Flow ($ Millions) Dividend To Free Cash Flow Payout Ratio (1% Yield)
FY2022 $3,915 $31,860 12.3%
FY2023 $3,915 $35,100 11.2%

* Facebook’s dividend-to-free cash flow payout ratio is calculated by the author and is based on the ratio of the company’s estimated dividend payout with respect to free cash flow.
* Facebook’s fiscal year begins on Jan 1 and ends on Dec 31.

The dividend payout ratio is calculated by dividing the cash outflow for the dividend by the total amount of free cash flow expected.

According to the table above, Facebook’s dividend-to-free-cash-flow payout ratio will come to slightly above 10% for a 1% dividend yield for fiscal 2022 and 2023 based on today’s stock price of $145.

These ratios are considerably low for Facebook.

In fact, there is plenty of room for Facebook to raise the dividend at a payout ratio of only 12%.

My comfortable figure sits at 30%.

Therefore, Facebook can afford up to a payout of $9.6 billion for fiscal 2022 and $10.5 billion for fiscal 2023 if it were to raise the payout ratio to 30%.

Facebook’s Dividend Payout Ratio – 30%

Fiscal Year Estimated Cash Outflow For 30% Payout Ratio ($ Millions) Estimated Free Cash Flow ($ Millions) Dividend To Free Cash Flow Payout Ratio
FY2022 $9,558 $31,860 30%
FY2023 $10,530 $35,100 30%

* Facebook’s dividend-to-free cash flow payout ratio is calculated by the author and is based on the ratio of the company’s estimated dividend payout with respect to free cash flow.
* Facebook’s fiscal year begins on Jan 1 and ends on Dec 31.

The table above shows a 30% dividend payout ratio for Facebook for fiscal 2022 and 2023.

As shown, Facebook only needs to dish out roughly $10 billion of cash if it were to pay a dividend that will consume 30% of the estimated free cash flow.

While this figure may seem massive, Facebook will still be left with a massive $20 billion of free cash flow at its disposal even after paying the cash dividend to shareholders.

It’s not a surprising move when Facebook or Meta Platforms used nearly $45 billion USD to buy back its common stocks in fiscal 2021.

In short, Meta Platforms was still a massive cash printing machine despite having a rough year in 2021.

More importantly, Facebook will likely remain a highly profitable company and will generate a massive amount of cash in 2022 and 2023.

Facebook’s Forward Dividend Yield For 30% Payout Ratio

Fiscal Year Estimated Cash Outflow For 30% Payout Ratio($ Millions) Common Stock Outstanding (In Billions) Estimated Cash Dividend Per Share ($ USD) Forward Dividend Yield (%)
FY2022 $9,558 2.7 $3.54 2.4%
FY2023 $10,530 2.7 $3.90 2.7%

* Facebook’s forward dividend yield is calculated based on the stock price of $145 USD.

At a payout ratio of 30%, Facebook’s cash dividend per share will amount to $3.54 and $3.90 USD for fiscal 2022 and 2023.

These figures will yield 2.4% and 2.7% respectively in fiscal 2022 and 2023, provided that you lock in Facebook’s current stock price at $145.

In other words, if you had bought Facebook or Meta Platforms’ stock price at $145, and Facebook declares a dividend in 2022 and 2023 at the estimated figures, then your dividend yield will come to 2.4% and 2.7%, respectively.

Keep in mind that Facebook’s common stock outstanding will likely go lower by the end of 2022 and in 2023 as the company still bought back shares as of 2Q 2022 and a $24 billion stock buyback remained available as of 2Q 2022 according to the 2Q 2022 10Q report.

Therefore, the actual cash dividend per share will slightly be higher due to share repurchase and thus, a higher dividend yield.

Conclusion

In conclusion, we have seen that Facebook or Meta Platforms (META) can definitely afford a cash dividend payout of roughly $4 billion in 2022 and 2023.

Facebook’s free cash flow is estimated to come in at more than $30 billion in 2022 and it will be much higher in 2023.

Therefore, the $4 billion cash payout will translate to a dividend payout ratio of slightly above 10%.

In terms of dividend per share, Facebook’s dividend payout amounts to $1.45 USD per share and the dividend yield comes to about 1% based on today’s stock price of $145 USD.

In addition, Facebook can definitely afford to raise the dividend to a 30% payout ratio.

At this ratio, the cash payout amounts to roughly $10 billion per year and Facebook will still be left with $20 billion of free cash flow.

Therefore, Facebook can afford this dividend payout and if this materializes, the dividend yield will be near 3% based on a stock price of $145.

While Facebook or Meta Platforms may be reluctant to return $10 billion of cash to shareholders in the form of dividends as the company has already been aggressively buying back shares, I think shareholders will be more than happy to accept a 1% dividend yield which translates to only $3 billion of cash payment.

In short, Facebook is a cash printing machine and can absolutely afford to declare a cash dividend in 2022 and 2023.

References and Credits

1. Facebook’s financial figures were obtained and referenced from the respective financial statements which can be obtained from the following links:

a) Facebook Investor Relations
b) Yahoo Finance

2. Featured images in this article are used under creative commons license and sourced from the following websites: 14 Wall Street and Financial District.

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Disclosure

The content in this article is for informational purposes only and is neither a recommendation nor a piece of financial advice to purchase a stock.

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