Will Tesla Ever Pay A Dividend? - Sure Dividend

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Will Tesla Ever Pay A Dividend?


Updated on April 1st, 2022 by Josh Arnold

The appeal of growth stocks is that they have the potential for huge returns. Consider the massive rally by Tesla, Inc. (TSLA); in just the past three years, the stock has returned about 1,900% to shareholders. That’s a lifetime of returns and more for many investors, and Tesla has done this in a very short period of time.

The downside of growth stocks of course, is that volatility can work both ways. Tesla has recently become consistently profitable, but that was certainly not always the case. And the company faces a mounting debt load, in addition to share issuances that dilute shareholders to support growth. Growth stocks can generate strong returns, but also carry the burden of high expectations due to their sky-high valuations, and Tesla is certainly no different.

Plus, Tesla does not pay a dividend to shareholders, which is also an important factor for income investors to consider. As a result, we believe income investors looking for lower volatility should consider high-quality dividend growth stocks, such as the Dividend Aristocrats.

The Dividend Aristocrats are a group of 66 stocks in the S&P 500 Index with 25+ consecutive years of dividend growth. You can download an Excel spreadsheet of all 66 (with metrics that matter such as dividend yield and P/E ratios) by clicking the link below:

 

Over time, any company – even Tesla – could make the decision to start paying dividends to shareholders, if it becomes profitable enough. In the past decade, other technology companies such as Apple, Inc. (AAPL) and Cisco Systems (CSCO) have initiated quarterly dividends. These were once rapidly growing stocks that matured, and Tesla could do that one day.

However, the ability for a company to pay a dividend depends on its business model, growth prospects, and financial position. Even with Tesla’s huge run-up in share price, whether a company can pay a dividend depends on the underlying fundamentals. While many growth stocks have made the transition to dividend stocks in recent years, it is doubtful Tesla will join the ranks of dividend-paying stocks any time soon.

Business Overview

Tesla was founded in 2003 by Elon Musk. The company started out as a fledgling electric car maker but has grown at an extremely high rate in the past several years. Tesla has a current $1.1 trillion market capitalization. Amazingly, Tesla’s current market capitalization is more than eight times the combined market caps of auto industry peers Ford Motor (F) and General Motors (GM).

Tesla has a growing lineup of different models and price points and is looking into expanding that lineup further to become a full-line automaker. Since going public in 2010 at just $17 per share, Tesla has produced outstanding returns for shareholders on hopes of massive future growth. Since then, it has grown into the leader in electric vehicles, and it also has business operations in renewable energy. Tesla is slated to produce about $83 billion in revenue in 2022.

Tesla reported fourth quarter earnings on January 26th, 2022, with results beating expectations on the top and bottom lines, impressing the investment community despite massive supply chain issues globally. Total revenue was up a staggering 65% year-over-year to nearly $18 billion, and beat estimates by more than a billion dollars.

Source: Investor Update

Automotive gross margin improved markedly year-over-year once again, rising from 24.1% in the year-ago period to 30.6% of revenue. This was essentially in line with Q3’s automotive gross margin value of 30.5% of revenue.

Tesla is on pace to deliver well over a million vehicles this year, as it continues to ramp up capacity to meet rising demand. Tesla posted its tenth consecutive quarter of profit, earning $2.54 per share on an adjusted basis in Q4.

Growth Prospects

Tesla’s primary growth catalyst is to expand sales of its core product line, as well as generate growth from new vehicles. The company’s S/X platform that gave it the first bout of strong growth has faded in popularity, and Tesla is instead focused on ramping its 3/Y platform.

Indeed, the 3/Y platform accounted for about 96% of all deliveries in the most recent quarter. In addition to that, Tesla is continuing to develop new models, with a pickup truck rumored, a semi truck, and even a cheaper, more attainable model than the 3.

Tesla is investing heavily in strategic growth, through acquisitions as well as internal investment in new initiatives. First, Tesla acquired SolarCity in 2016 for $2.6 billion. Tesla is also ramping up vehicle production. Tesla now operates “Gigafactories” in Berlin, Austin, and Shanghai, with more to come to support its burgeoning demand.

Tesla’s growth in revenue per share has been nothing short of outstanding. It produced more than two hundred times more revenue per share last year than 2010, the year it came public. That level of growth is difficult to find anywhere, and it is why Tesla’s shares have performed so well. Whether Tesla can continue to maintain its high rate of growth is another question.

Will Tesla Pay A Dividend?

Tesla has experienced rapid growth of shipment volumes and revenue in the past several years. But ultimately, a company’s ability to pay dividends to shareholders requires success on the bottom line as well. While Tesla has been the epitome of a growth stock through its top-line growth and huge share price gains, its profitability is still diminutive in relation to its market cap.

Without reaching steady profitability, a company simply cannot afford to pay a dividend to shareholders. In fact, consistently losing money means a company will have trouble keeping its doors open, if losses persist over time. However, while this used to be an issue for Tesla, those issues seem to have been fixed by ever-rising delivery volumes.

Source: Investor Update

Tesla lost money since it became publicly traded back in 2010, up until 2020. It goes without saying that a money-losing company has to raise capital to continue to fund operations. To that end, Tesla has sold shares and issued debt to cover losses and fund expansion in recent years, both of which make paying a dividend even more difficult.

However, since 2020, Tesla has rapidly expanded its profitability, and produced almost $6 billion in net income in 2021. The company also produced nearly that much in free cash flow, making it much easier to service its debt obligations, as well as avoid future dilutive share issuances.

Tesla has about $30 billion in total liabilities, although much of that is trade payables and other short-term, operating obligations. Long-term debt is below $5 billion, so Tesla has meaningfully improved its balance sheet in recent years with its newfound profitability.

We see the sizable improvement in profitability and free cash flow, as well as the improved balance sheet as supportive of the company’s ability to eventually pay a dividend. However, Teslas is still very much in hyper-growth mode, and we expect any dividend that may be paid to be many years away.

Tesla’s Stock Dividend

Tesla’s famous CEO, Elon Musk, said recently that he wants Tesla to “increase in the number of authorized shares of common stock … in order to enable a stock split of the Company’s common stock in the form of a stock dividend.”

Essentially, a stock dividend is where a company splits its stock, and the impact on shareholders is that the value of the company doesn’t change, but the share price is lower because there are more shares outstanding.

For example, Tesla trades for $1,077 today, so if it enacted a stock dividend of four shares for every share of Tesla today, the outstanding share count would rise from 1.13 billion today, to 5.6 billion post-stock dividend. That would mean the share price would need to reflect the dividend, so each share would then be worth one-fifth its current price, or $215.

A stock dividend is not necessarily a material event for shareholders, because their relative stake in the company remains the same; they just have more shares at a lower price. However, investors tend to view stock dividends and splits as bullish events, and they can trigger rallies in the share price.

Final Thoughts

Tesla has been among the market’s hottest stocks since the start of the pandemic, producing a massive rally that has taken it above a trillion dollars in market cap. Shareholders who had the foresight to buy Tesla near the 2019 lows have been rewarded with enormous returns through a soaring share price.

However, investors looking for dividends and safety over the long run should probably continue to take a pass on Tesla stock. The company needs to use all the cash flow at its disposal to improve its operations’ profitability, and invest in growth initiatives. While there is always a possibility that Tesla’s massive share price rally could continue, it is also possible the stock could fall. Investors should remember that volatility can work both ways, and indeed, Tesla shareholders were reminded of this in early-2022.

More defensive investors such as retirees, who are primarily concerned with protection of principal and dividend income, should instead focus on high-quality dividend growth stocks such as the Dividend Aristocrats. It is unlikely Tesla will ever pay a dividend, or at least, not for many years.

See the articles below for analysis on whether other stocks that currently don’t pay dividends will one day pay a dividend:

  1. Will Amazon Ever Pay A Dividend?
  2. Will Shopify Ever Pay A Dividend?
  3. Will PayPal Ever Pay A Dividend?
  4. Will Advanced Micro Devices Ever Pay A Dividend?
  5. Will Chipotle Ever Pay A Dividend?

If you are interested in finding more high-quality dividend growth stocks suitable for long-term investment, the following Sure Dividend databases will be useful:

The major domestic stock market indices are another solid resource for finding investment ideas. Sure Dividend compiles the following stock market databases and updates them monthly:

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