Will a New CFO Lead to a Google Dividend?

Wall Street’s most powerful woman is coming to Silicon Valley.ruth-porat
Google (NASDAQ: GOOGL) announced at the end of March that it had hired longtime Morgan Stanley (NYSE: MS) executive Ruth Porat to take over as its new CFO.
A lot of the early reporting on Porat’s move to Google focused on the sweet pay package she negotiated for herself. I think the real story here is the likelihood that we will finally see a Google dividend.
Porat worked at Morgan Stanley for nearly 30 years, starting with the company in 1987. She is widely reported to have been instrumental in helping the Federal Reserve save insurance giant AIG (NYSE: AIG) and, thus, the financial world as we know it.
Porat has served as Morgan Stanley’s CFO since 2010. She’s been an important part of its post-crisis restructuring and deserves a lot of credit for the bank’s recent success.
Porat also presided over the bank’s first dividend increase since the financial crisis, a 100% increase in payout from $0.05 per share to $0.10 per share in 2014.
When Porat arrives for her first day of work on May 26 she will undoubtedly face the Google dividend question. And rightfully so.
The company is sitting on more than $64 billion in cash and short-term investments – 17% of the company’s total market capitalization. Google also earned $20.69 per share in profits last year, while returning none of it to shareholders.
Google’s previous stance on dividends has been that its investors are better served by Google’s big cash pile, particularly because it allows the company to make quick and large acquisitions. “It serves the shareholder best to actually have that strategic ability to pounce,” Google’s outgoing CFO, Patrick Pichette, said on the topic.
Still, I have no doubt that the company will maintain the ability to pounce quickly and, if necessary, buy whole companies in all-cash deals even if it is paying a dividend to shareholders.
In addition to a Google dividend, a Google stock buyback is another option that has been suggested. A stock buyback makes sense if the company thinks its stock price is so low that buying its own shares is a better use of its cash than other investments it might make. Considering that Google trades at a not unreasonable P/E ratio of 26.8 and a forward P/E ratio of 16.6, a buyback wouldn’t be the worst idea.
But a Google dividend? It seems to me like a no-brainer.
Already Google’s ability to spend money on companies and moonshot ideas has been outpaced by its ability to generate cash. And as Google generates more and more revenue and generates solid returns from its recent acquisitions, this trend will only continue.
I’m of the mind that Google is in the position of Apple (NASDAQ: AAPL) circa 2012. Sluggish stock performance and a rapidly growing cash pile dominated the conversation about the stock until the company announced what would become the largest capital return program ever: a combination of share buybacks and dividends.
While it is worth noting that Google has outperformed Apple since the latter announced the buyback and dividend, I don’t think it’s because Google isn’t paying a dividend itself.
The time has come for a Google dividend, and I think its new CFO will bring just the fresh perspective that is needed to change the way Google thinks about its obligations to shareholders.
I’m sure it will take Porat some time to get her feet wet at Google before making such a major change, but I fully expect a dividend and stock buyback combination in the next year.
DISCLOSURE: I personally own shares of Apple.

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