Why doesn’t Amazon pay dividends? | Smart Change: Personal Finance
For years, investors may have avoided buying Amazon (NASDAQ: AMZN) Because its stock price is really high. But earlier this year, Amazon made the decision to split its shares, making the shares more accessible to investors.
If you’re looking to add tech stock to your portfolio as a way to diversify or want to own Amazon, you might consider taking that leap, now that the stock price is lower. But one thing for you wont Getting it when you invest in Amazon is a stream of dividend payments.
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While many stock-issuing companies pay dividends on a regular basis (some even steadily increase their dividends over the years), Amazon does not pay dividends to shareholders. But that isn’t necessarily a bad thing.
Why doesn’t Amazon pay dividends
Companies that make money can choose what to do with it. Some may choose to reinvest all of their earnings into the business, while some may choose to share the wealth with shareholders in the form of dividend payments.
Neither approach is right versus wrong – it’s really just a matter of which strategy a particular company prefers. Amazon’s business model has always focused on innovation and branching out into different corners of the market, as evidenced by its entry into the grocery and pharmacy business in recent years. As such, it’s easy to see why Amazon didn’t choose to pay a dividend – it would rather use its money to grow as a company.
Whether that is a reason not to invest in Amazon is up to you. If your goal is to secure a steady stream of distributed income in your wallet, then Amazon is clearly a bad choice. But if you’re willing to overlook that absent return and focus on growth, you may decide that Amazon is a buy.
One thing to keep in mind is that companies that pay generous dividends don’t always see the same growth as those that don’t. So what you lose in the form of no dividend payments, you may gain in the form of a rise in the share price – especially if you load up on Amazon shares now and hold them for many years.
Look at the big picture
Some investors get caught up in the process of chasing profits, to the point where they put their money into companies that aren’t necessarily well suited to their investment portfolios. Also, some people mistake a higher dividend payment as a sign of financial health. This is certainly not always the case. If you’re interested in owning a part of Amazon, and after doing your research you feel it’s a solid business, the company’s lack of dividend payments shouldn’t be the driving factor for you to pass it on.
Dividends are definitely a great thing as you can use them as cash or reinvest them. But you can make a lot of money over time by investing in a quality business, like Amazon, with growth as a clear top priority.
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John Mackie, CEO of Whole Foods Market, an Amazon company, is a member of The Motley Fool’s Board of Directors. Morey Bachmann holds positions at Amazon. Motley Fool has and recommends positions at Amazon. Motley Fool has a disclosure policy.