Amazon likely needs little introduction, as Jeff Bezos’ ubiquitous internet commerce company has grown from humble beginnings as an online bookstore to sprawling e-commerce and cloud computing juggernaut in the twenty-plus years since its inception in 1994. Since we don’t have an Amazon Alexa handy to ask the question, let’s explore if Amazon pays their shareholders dividends.
In the last ten years, the price of Amazon stock has jumped from below $80 per share pre-recession in July 2008 to over $1,600 today, an increase in the ballpark of 1,900% over that span of time. To put such tremendous growth in perspective, a $1,000 investment in Amazon in 2008 would be worth more than $20,000 today. Many factors likely influence this surge in valuation over the years, including an ever-growing Amazon Prime subscriber base, a laundry list of active acquisitions, and booming worldwide e-commerce sales growth.
Does Amazon Issue Dividends?
The simple answer is no, as Amazon does not currently issue dividends and is not likely to do so anytime soon.
Even a small dividend would be enormously costly for the company and would get in the way of other priorities such as paying off debt, investing in ongoing operations, and targeting big-ticket acquisitions like that of Whole Foods Market in 2017.
As a result, it is a good bet to expect Bezos and Amazon to continue relying on constant all-time high stock values to satisfy shareholders in place of attractive dividend yields.
Wait, What Are Dividends Again?
Dividends are a voluntary distribution of some portion of a company’s earnings to shareholders. A company’s board of directors decides whether to issue dividends on stocks or not, usually opting to reward shareholders in the form of cash payments or an additional shares of the same stock.
For example, say you hold 100 dividend stocks of a company which has declared a dividend of 10 cents per share. If paid as a cash dividend, you will receive $10 in your investment account. In the case of a stock dividend, the company will automatically reimburse the investor with additional shares proportional to the profits earned.
Again, keep in mind that dividends are not mandatory and are offered only at the discretion of the board of directors. The chance that a given company provides a dividend to shareholders is also a function of the industry it operates within. Telecom and utility companies have historically paid dividends at a more robust rate than other sectors, while you shouldn’t expect dividends in the high-growth technology space.
Investors can reinvest dividends back into shares of the same company under increasingly popular dividend reinvestment plans. For example, Stockpile offers free dividend reinvestment.
Thanks to the power of compound interest, enrolling in dividend reinvestment is widely considered one of the best things you can do with your earnings. Reinvesting dividends is a great way to generate additional returns without worrying about broker commissions or minimum investment requirements. Dividends also serve as a useful tool for generating passive income during retirement.
There is even a class of stocks referred to as dividend aristocrats that have demonstrated a proven history of increasing annual dividends, which serves to allow retirees to enjoy the income that keeps pace with inflation.
Not surprisingly, dividend aristocrats include historically stable companies such as McDonald’s, Coco-Cola, Walmart, and Walgreens.
Using dividends as a source of income during retirement is entirely different than seeking compound returns over time, so your focus will likely turn to cash out dividends immediately upon receiving them rather than reinvesting them back into the company.
Dividends Tax Rate
Ordinary dividends are taxed at the same rate as your income tax bracket, while qualified dividends are taxed at the capital gains rate. As such, individuals in the lowest income tax brackets of 10% to 15% pay no taxes on qualified dividends, while middle and high-bracket earners pay at most 15% and 20% respectively.
So what qualifies a qualified dividend? First, it needs to meet the IRS requirement to be “paid during the tax year from domestic corporations and qualified foreign corporations.” This means that most stocks issued on major US exchanges will qualify.
However, a second stipulation requires that investors have held the share for more than 60 days over a 120-day period, beginning on that stock’s ex-dividend date.
An ex-dividend date, put simply, is the date at which the seller of the stock will receive the next dividend instead of the buyer. It is set based on stock exchange rules and will usually fall after the dividend is declared but one day before the dividend is recorded.
If you think you satisfy the above criteria, the good news is that you most likely will receive a qualified dividend and be taxed at the lower capital gains rate.
There are additional requirements in less common cases such as for earning dividends on preferred stock, so it is a good idea to consult your broker directly with any questions concerning the tax status of your dividends.
The Easiest Way to Invest in Amazon
With a price of over $1,600 for a single share of Amazon at the time of writing this article, no one can blame you for being intimidated by the idea of getting into the action yourself.
However, Stockpile offers a new and exciting way to invest in fractional shares, with minimum investments of as low as $5. With free sign up, no monthly fees or minimums, and a wide range of over 1,000 stocks and ETFs to choose from, including tech giants like Amazon, Apple, and Microsoft, there’s never been an easier time to start investing.