Amazon.com (AMZN) currently holds a market capitalization above $1.5 trillion, making it one of the most successful businesses in the history of the world. Amazon has taken over Internet retail, upending the entire brick-and-mortar retail industry in the process.

Not surprisingly, Amazon’s amazing growth story has made it a favorite holding of some major institutional investors such as Lone Pine Capital, a major U.S. hedge fund. Amazon has been one of the market’s premier growth stocks over the past decade, returning 35% a year on average over the past 10 years.

There are good reasons to buy Amazon, but investors should first understand that future returns will be driven entirely by a higher share price—not dividend income. Amazon is a high-quality business, but investors should not expect a dividend any time soon.

Business Overview

Founded in 1995 by Jeff Bezos, Amazon.com began as an online bookstore. Today the company has become one the world’s largest online retailers. In 2019 the company generated $280.5 billion in revenue, with approximately 57% from product sales and 43% from services. In addition, North America accounted for roughly 61% of sales, International markets make up 27% of sales, and Amazon Web Services (AWS) equaled about 12% of sales last year.

On July 30th, 2020 Amazon released Q2 2020 results for the period ending June 30th, 2020. For the quarter Amazon generated $88.9 billion in revenue, above prior guidance of $75 -$81 billion, representing 40.2% improvement compared to Q2 2019. This result was driven by a 40.1% increase in product sales and a 40.4% in service sales. Notably, service sales made up 43% of all revenue. Operating income equaled $5.8 billion, up from $3.1 billion in the year-ago period, and well above prior guidance of -$1.5 billion to +$1.5 billion. Net income totaled $5.24 billion or $10.30 per share compared to $2.63 billion or $5.22 in Q2 2019.

Amazon also provided guidance for the third quarter of 2020. The company expects Net Sales of between $87.0 billion and $93.0 billion, indicating 24% to 33% growth, along with Operating Income of $2.0billion to $5.0 billion. Clearly, Amazon is successfully navigating the coronavirus pandemic. If anything, it has benefited from the pandemic as consumers accelerate their spending to online channels while shying away from physical stores.

Ring The Register For Growth

Amazon’s historical growth has been nothing short of amazing. Consider that in 2008, Amazon generated revenue of $14.84 billion. Sales reached $280 billion in 2019, an amazing level of growth over the past decade.

Amazon has a trifecta of competitive advantages in the way of a low-price offering coupled with exceptional logistical capabilities, execution, and customer experience. The “Amazon effect” weighs heavy for competitors and it has become a real challenge for a variety of industries. As Jeff Bezos says, “your margin is my opportunity.” Moreover, Amazon has thus far been able to procure better margins than traditional retailers via its online and service operations. In turn, this allows the company to explore new areas and diversify its business lines.

Due to an excellent operating history, Amazon’s balance sheet is good shape. As of the most recent report, Amazon held $36.1 billion in cash, $96.3 billion in current assets, and $225.2 billion in total assets against $87.8 billion in current liabilities and $163.2 billion in total liabilities, including $23.4 billion in long-term debt. So far, the growth story has not been dampened by the current crisis. Moreover, without a dividend, Amazon should be able to weather the storm.

Amazon does not pay a dividend and is not likely to for the foreseeable future. The company does not have high-profit margins, and management clearly prioritizes growth above all else. Therefore, while growth investors still have plenty of reason to like Amazon, income investors would be best advised to avoid the stock.