Don’t Be Lured in by Meta’s Dividend; Here’s a Better Mag-7 Stock

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When you think about the Magnificent Seven (Mag-7) stocks, you probably think about growth, not passive income. Indeed, the relentless share-price momentum is what Meta Platforms (NASDAQ:META), Amazon (NASDAQ:AMZN) and other Mag-7 names are mainly known for.

Yet, when Meta Platforms announced a passive-income opportunity for investors recently, the market went absolutely bananas with excitement. Friday’s 20% surge in META stock may have been due in part to Meta Platforms’ impressive fourth-quarter 2023 financial results.

However, the real headline grabber was Meta’s first-ever announcement of a dividend. Nonetheless, before you jump on the bandwagon and load up on Meta Platforms shares, just consider that there may be a better buy in the Mag-7 category.

One word: Paltry

There’s no denying that Meta Platforms demonstrated growth in Q4. On a year-over-year basis, Meta’s revenue increased 25%, while its diluted earnings per share (EPS) grew 203%.

Furthermore, Meta Platforms’ costs and expenses declined 8%, and its headcount decreased 22%. Thus, CEO Mark Zuckerberg’s “year of efficiency” plan seems to have worked out well.

However, value-conscious investors might feel uncomfortable jumping into a share position now. From the spooky Halloween 2022 low of around $90, META stock rallied 428% to Friday’s closing price of approximately $475, but even 203% EPS growth doesn’t seem to justify share-price appreciation of this magnitude.

Now let’s talk about the dividend that everyone is buzzing about. For the first time in its history, Meta Platforms is finally going to pay quarterly dividend distributions.

If I had to describe Meta’s dividend in a single word, it would be “paltry.” It’s a mere 50 cents per share, and if the company’s share price is around $475, then that translates to dividend yield of 0.1% per quarter or 0.4% annualized. At that rate, a $1,000 investment in META stock would yield $4 in dividends if you wait a full year.

I’ve heard people wonder out loud whether Meta Platforms’ dividend announcement will prompt other technology companies to start paying dividends, although passive-income investors shouldn’t get too excited. If other companies do follow Meta’s lead, then they might also end up paying paltry dividends.

Try this Mag-7 pick instead

If you share Meta Platforms CEO Mark Zuckerberg’s vision of a robust future for the metaverse, then feel free to buy META stock. Just bear in mind that Apple (NASDAQ:AAPL), another Mag-7 member, will compete directly with Meta in the market for metaverse-enabled headsets.

Additionally, there’s another even better Mag-7 name to consider right now: Amazon. Although Amazon doesn’t pay a dividend, Meta’s minuscule dividend isn’t anything to write home about.

A basic difference between Amazon and Meta Platforms is that Meta is mostly a purveyor of entertainment and distractions. In contrast, the COVID-19 pandemic made it abundantly clear that Amazon’s e-commerce service is a necessity in certain situations.

Further, the Amazon Web Services (AWS) cloud-computing platform isn’t just fun and games like Meta’s services often are. Businesses large and small rely on AWS, and it will undoubtedly continue to be a strong revenue generator for Amazon.

Moreover, just like Meta Platforms, Amazon also posted impressive fourth-quarter results. Amazon’s net sales grew 14% year over year. Meanwhile, the company’s diluted EPS skyrocketed 3,233% from 3 cents in the year-earlier quarter to $1 in Q4 2023.

In light of these results, it’s fair to say that Amazon CEO Andy Jassy earned some bragging rights.

“This Q4 was a record-breaking holiday shopping season and closed out a robust 2023 for Amazon,” Jassy remarked.

No dividend? No problem!

I’d be hard-pressed to call META stock or even AMZN stock a bargain at their current price points. Amazon’s trailing 12-month price-to-sales (P/S) ratio of 3.08 is somewhat higher than I’d prefer. However, Meta’s P/S ratio of 9.06 is extreme to the point of being a deal breaker.

In an ideal scenario, both stocks would pull back sharply, and their valuations would be more reasonable. Yet, investors can’t just sit around and wish for things to happen. They have to work with what’s available in the real world.

Thus, in the grand scheme of things, Meta’s little dividend shouldn’t be a major consideration for sensible investors. Instead, I encourage you to focus on Amazon’s EPS growth, which is even greater than that of Meta Platforms.

Additionally, consider which Mag-7 stock presents a better value proposition. In the end, I think you’ll find that AMZN stock is a better pick than META stock, even if dividends are important to you.

Disclaimer: All investments involve risk. In no way should this article be taken as investment advice or constitute responsibility for investment gains or losses. The information in this report should not be relied upon for investment decisions. All investors must conduct their own due diligence and consult their own investment advisors in making trading decisions.