E Alibaba: Buy This Stock For Growth, But Don't Expect A Dividend Soon

Being able to pay a dividend requires a company be profitable and produce positive cash flows. Many companies in the technology sector do not pay a dividend because they are often reinvesting back into their business.

For this reason, many high-growth tech companies are unable to pay a dividend because of negative cash flows.

One company that is both profitable and producing positive free cash flows is Alibaba (BABA). The question for income investors is, will the company ever pay a dividend?

Business Overview

Alibaba is an e-commerce giant that provides online and mobile commerce business in international markets, primarily China. The company consists of four business divisions: Core commerce, cloud computing, digital media, and innovation initiates. Of these, the core commerce division is the most vital to Alibaba as it produced nearly all of the earnings for the company.

The Chinese middle class now numbers more than 300 million people and this group is expected to double in size over the next decade. With a strong presence in China, Alibaba is in a prime position to see its business accelerate going forward.

This acceleration is already taken place now. Alibaba’s revenues grew by more than 50% in 2018, mostly due to its core commerce business. The company’s annual active users increased 18.5% to 654 million people. Mobile customers grew 17% to 721 million customers. Even better for the company is that more than 70% of the increase in active consumers came from the less developed cities in China.

This growth has shown up on the company’s bottom line. Since going public in 2014, Alibaba’s earnings-per-share have more than tripled. There are not very many high-growth tech companies that are showing this level of profit growth.

Free Cash Flow

Growth of this magnitude doesn’t come cheap. Alibaba has had to reinvest into its business as the company has spent an immense amount of capital to help grow its customer base. Over the last three years, product development, marketing, and general & administrative expenses consumed between 70% and 80% of total revenues each year.

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Harry Sinclair 1 year ago Member's comment

Anyone who buys $BABA strictly for a dividend is nuts. The company has tremendous potential all on its own.