Meta Is Now a Dividend Stock, but This Tech Giant Is a Better Buy

The big surprise in Meta Platforms‘ (NASDAQ: META) fourth-quarter earnings report last week was the initiation of the social media giant’s first-ever dividend. Meta will pay $0.50 per share to shareholders of record on Feb. 22. On an annualized basis, that works out to a dividend yield of about 0.5%.

This dividend yield will likely grow over time as Meta boosts its payout, although share buybacks are still a big part of the equation. Along with the dividend announcement, Meta disclosed that an additional $50 billion had been allocated for share buybacks. Meta poured nearly $20 billion into buying back its own stock in 2023; the dividend will eat up just over $5 billion over the next year if it remains at its current level.

A tough sell for dividend investors

For dividend investors, Meta is a tough sell. There’s plenty of room to grow the dividend over time; Meta reported a net income of $39 billion and a free cash flow of $44 billion for 2023. However, share buybacks appear to be the priority. If Meta takes the same path as Apple, which has been paying a dividend for a decade but still sports a dividend yield of around 0.5%, the dividend will never be all that consequential.

Another wrinkle is Meta’s valuation. The stock isn’t overly expensive, but it’s not cheap, either. With a market capitalization of around $1.2 trillion following a post-earnings rally, the stock trades for roughly 27 times free cash flow.

While Meta reported strong growth in Q4, with revenue surging 25% year over year and net income more than tripling, there’s plenty of long-term uncertainty. For one, the core social media business faces the prospect of increased regulation. “We could regulate you out of business if we wanted to,” said Senator Thom Tillis during a recent Senate hearing with top social media executives focused on child safety.

Meta’s vast investments in the metaverse and artificial intelligence (AI) also have unclear and uncertain payoffs. Reality Labs, Meta’s metaverse-focused…