Is Nvidia a Sleeper Dividend Giant?
Key Points
Nvidia's dividend may be small, but it has huge room for growth.
The tech giant's payout ratio is much lower than that of other dividend payers.
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Nvidia (NASDAQ: NVDA) and the words "dividend stock" aren't normally mentioned in the same sentence, but maybe they should be. While Nvidia is normally tagged as a high-growth, artificial intelligence stock, which it is, it's also a growing dividend payer. While the dividend payout isn't as high as some others, it could rapidly expand over the next few years as Nvidia's cash flows multiply.
Buying Nvidia stock today could mean it becomes one of the bigger dividend payers in your portfolio in the future, and that's just one of a growing list of reasons to buy it.
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Nvidia recently hiked its dividend
For the longest time, Nvidia's dividend was basically a joke. The annual payout was $0.04, or $0.01 per quarter. During its Q1 earnings report, Nvidia announced it would increase its dividend to $0.25 per quarter, or $1.00 per year.
With Nvidia trading at $225 as of Sept. 25, that only equates to about a 0.45% yield. Most dividend investors want a yield far higher than that, so Nvidia typically doesn't appear on high-paying dividend screeners. But that's only one part of the equation.
Dividend investors should also pay attention to the potential for dividend growth. Home Depot (NYSE: HD) is often cited as one of the top dividend-paying companies. While its yield isn't particularly high (about 3.2%), it's a robust yielder that many dividend investors center their portfolios around.
The payout ratio is a key metric that dividend investors need to track. It measures how much of its earnings a company pays out in dividends. Home Depot's dividend payout ratio is fairly high, typically above 50%. But that's still a healthy figure, far below 100%, and it indicates that Home Depot isn't stretched to pay its dividend each quarter. Nvidia's is much lower, at about 10%.
HD Payout Ratio (Quarterly) data by YCharts.
That means there's massive room for dividend growth at Nvidia, and it may continue hiking its dividend to reward shareholders. Nvidia could quintuple its payout ratio and still be just below Home Depot's dividend commitment.
So, Nvidia is not a hefty dividend payer now, but as it matures, it could become a bigger one. That makes Nvidia a dividend stock well worth considering today, as you get the benefit of a small but growing dividend and a stock with some of the best growth prospects on the planet.
There are many reasons to buy Nvidia stock, and its growing dividend is one of them.
Should you buy stock in Nvidia right now?
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Keithen Drury has positions in Nvidia. The Motley Fool has positions in and recommends Home Depot and Nvidia. The Motley Fool has a disclosure policy.
