The decision whether a company should pay a dividend is a complex one. Dividends can be a major part of a company’s capital allocation strategy. For example, the Dividend Aristocrats are a group of 53 stocks in the S&P 500 that have raised their dividends for 25+ years in a row.

Other companies do not pay dividends at all, and use cash flow for other purposes, which might include growth investments, acquisitions, debt repayment, or share buybacks. The technology sector includes many stocks that do not pay dividends to shareholders, particularly Internet-based companies.

Netflix (NFLX) does not currently pay a dividend, and never has as a public company. That does not necessarily mean non-dividend paying stocks are a bad investment. Far from it—Netflix stock has increased nearly nine-fold from its five-year low price of $40 in October 2013.

Many large technology companies now pay dividends to shareholders, which brings up the question: will Netflix ever pay a dividend?

Business Overview

Netflix is a media giant, with more than 130 million memberships in over 190 countries around the world. Netflix offers a wide variety of second-run television shows and movies, and also produces its own original content.

Source: Content Presentation, page 6

The company started out as a DVD-by-mail provider, but in recent years has shifted to streaming content over the Internet.

Netflix subscribers get access to a huge library of TV series, documentaries, and feature films across a wide variety of genres. Netflix has invested heavily in curating and producing the best content, which has been crucial to its massive subscriber growth in recent years.

Source: Earnings Presentation, page 2

This has resulted in huge revenue growth over the years. From 2013-2017, Netflix grew revenue by approximately 28% per year. Earnings-per-share have grown at a 48% annual rate in that time, but despite that growth, Netflix still does not pay a dividend.

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