Chasing Alphabet's 6.25% Dividend Yield? Read the Fine Print First.
This tech giant's massive capital raise, used to fund the artificial intelligence build-out, introduced an interesting financial instrument.
Overview
Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) historically has had no shortage of growth opportunities to direct its capital toward. That's why it never paid a dividend in the past, as management felt the cash was better suited to reinvest in the business. This philosophy changed in June 2024, when the company paid its first quarterly dividend of $0.20 per share. That payout is now $0.22 per quarter. But the low dividend yield of 0.25% isn't enough to compel income investors to buy this Magnificent Seven stock.
The situation looks a bit different now. Alphabet is investing so much to expand its artificial intelligence (AI) infrastructure that it has now tapped equity markets to raise fresh capital. As part of a nearly $85 billion raise, the company issued $16.75 billion of convertible preferred stock (GOOGM is the Class A equivalent, and GOOGN is the Class C equivalent). It offered a hefty 6.25% dividend yield at issuance.
Details
That seems like a good deal, especially since the preferred stock comes from one of the most dominant tech companies. Before you rush to buy, read the fine print first.
Source
Originally published at www.fool.com.