Will Salesforce Ever Pay A Dividend?

Even if Salesforce began paying a $1.50 annual dividend – lofty based on recent earnings – this would only imply a current dividend yield of about 0.6%. More importantly, it would interrupt the company’s growth thesis. In the short to intermediate-term Salesforce is not expected to pay a dividend. The focus will be on continued growth, reinvestment, and acquisitions.

Of course, that does not mean that the company will never pay a dividend. There are three things to look out for, which might give us a clue as to when this could occur:

  • Manageable debt load
  • Stabilizing share count
  • Maturing growth

The debt load is already manageable, a product of the relatively capital-light business model paired with a preference for issuing equity.

The share count, on the other hand, has gone from 509 million in fiscal year 2010 to 893 million at the end of fiscal year 2020 – equating to a 5.8% annualized growth rate. Moreover, as of the last financial report, the share count stood at 922 million. When the share count starts stabilizing, without the company taking on excess debt, this could indicate a turning point in capital allocation.

Finally, when management indicates or the company’s financials begin to show maturing growth, this could likewise be an inflection point. This is not expected in the short or medium-term, but it is something to watch over time.

Final Thoughts

Salesforce has been an exceptional investment over the past two decades, as a result of a phenomenal revenue growth record. Eventually, the value investors are placing on shares is predicated on the top line growth converting to bottom-line results. However, for the foreseeable future, the company is still very much focused on growth and reinvesting in the business. This means that excess funds will not be available and the likelihood of a dividend in the short-term appears remote.

Over the long-term, if Salesforce is successful in converting its strong top line to a consistent bottom-line result, there may come a day when the company has excess cash available. In particular, seeing a stabilizing share count and maturing growth trajectory could signal a turning point in capital allocation strategy. When this time comes, a dividend may not be that far off for this growth company.

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Disclosure: Sure Dividend is published as an information service. It includes opinions as to buying, selling and holding various stocks and other securities.

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Harry Goldstein 3 months ago Member's comment

I've often wondered about this myself.