Big Tech’s €130bn cash haul points to payouts for shareholders

While having cash in the bank is a good position to be in, stock market investors appreciate when companies invest any excess money for better opportunities or return it to shareholders

Apple, Microsoft, and now Facebook owner Meta have dividend plans.

Big Tech is bringing in more cash than ever before, priming the group to return money to shareholders and potentially adding fuel to a rally that has already sent most of the group into record territory.

The five biggest technology companies that have reported earnings so far — Apple, Microsoft, Google-owner Alphabet, Amazon, and Meta Platforms, which owns Facebook, — generated a record $139.5bn (€130bn) of combined cash from operations in the three months to the end of December, according to data compiled by Bloomberg.

Investors can “expect excess free cash-flow to largely be returned to shareholders given that these companies already possess strong balance sheets and high net cash positions”, said Angelo Zino, senior equity analyst at CFRA Research.

Greater focus on capital returns will help contribute to shareholder value over time and is better than holding onto excess cash on the balance sheet.

Only Apple, Microsoft, and now Meta have dividend plans in this group. While having cash in the bank is a good position to be in, investors appreciate when companies invest any excess money for better opportunities or return it to shareholders. In some ways, it has become more challenging for the firms to spend it. 

Amazon last month abandoned a $1.4bn purchase of Roomba maker iRobot Corp after clashing with EU regulators. 

Amazon last month abandoned the purchase of Roomba maker iRobot Corp after clashing with EU regulators. Picture: Niall Carson/PA Wire

Microsoft eventually completed its $69bn acquisition of video game maker Activision Blizzard, but only after two years of trans-Atlantic scrutiny that threatened to scupper the deal.

Share buybacks, on the other hand are seen as a way to return profits to investors while reducing the number of shares outstanding — theoretically increasing the value of the remaining stock. 

Such moves enable firms to demonstrate that they are profitable, well-performing, and believe their shares are still undervalued. 

“The confidence signalled by the payment or increase of a dividend can be a powerful boost to sentiment,” said Russ Mould, investment director at AJ Bell. 

Meta showed what aggressive capital returns can do when it initiated a quarterly dividend and earmarked $50bn in funds for share repurchases. 

“You rewind 10 years ago when a tech company starts giving a dividend — it’s usually the beginning of the end of growth,” said Gene Munster, co-founder at Deepwater Asset Management. But Meta’s dividend came alongside continued investments signalling “they believe they can achieve growth in AI and Reality Labs by doing this themselves”, he said. 

Still, there are also reasons for investor caution, said Mr Mould, citing how buybacks can be used to juice earnings per share figures by reducing share count, for example. Big Tech has spent about $186bn on share buybacks over the last 12 months. 

While Apple, Alphabet, Microsoft, and Meta have consistently spent billions in buying back stock, Amazon has been a notable hold-out recently. Amazon generated a record $42.5bn in cash in the fourth quarter but didn’t repurchase any shares and doesn’t pay a dividend. Its cash and cash equivalents are at about $87bn. 

• Bloomberg