Many have seen NVIDIA stock grow by leaps and bounds only to soon after be down again, often lower than it was before.
Despite this analysts are now making points that NVIDIA stock should pay more in dividends to shareholders.
Over the last 12 months, NVIDIA has generated more than $5.40 per share in free cash flow. The company’s current quarterly dividend of $0.16 per share translates into full-year dividend payments of just $0.64, or just shy of 11.9% of its trailing 12-month free cash flow.
If we compare that dividend payment to NVIDIA’s expected non-GAAP earnings per share (EPS) for fiscal year 2019 of $7.23 and $7.22 for fiscal year 2020 (those are the average analyst estimates), then NVIDIA’s current dividend represents less than 9% of the annual EPS that the company is expected to generate in both fiscal 2019 as well as fiscal 2020.
There are many reasons of course why NVIDIA may want to stave off the paying of big dividends at this time.
As mentioned their stock is up, down and all over the place and they are trying desperately to reinvest in the companies key assets.
What’s more they are deploying capital toward research and development hoping to become one of the top players in Artificial Intelligence as well as virtual reality gaming.
If NVIDIA were to triple its dividend to $1.92, that payment would represent a little under 36% of the company’s trailing 12-month free cash flow and less than 27% of the company’s expected fiscal year 2020 EPS. This means the company would still have plenty of cash left over to do things like buy back stock or simply stash it in the bank while putting a bigger amount of cash into its shareholders’ pockets. Moreover, even in a bad situation wherein NVIDIA sees a large reduction in free cash flow to, say, half of what it was over the last 12 months — in other words, roughly $2.70 per share — the company would still be able to cover that dividend.
As can be seen of course some analysts believe that NVDA stock should be paying out higher dividends to shareholders because based on the profit / loss books, the company can afford to.
What’s more many believe this would help the share price increase because many investors look for high yield dividend stocks to invest more into.