Nvidia’s big dividend increase could lay the groundwork for other big tech companies to follow suit. The chipmaker has recognized “parabolic” demand for artificial intelligence chips in data centers and recently announced it would expand into chips for personal computers, which CEO Jensen Huang said would “reinvent the PC.” The demand is a cash flow windfall for the company, which recently announced it would return more money to shareholders. The company declared a 2,400% increase in its dividend, from a quarterly dividend of 1 cent per share to 25 cents per share, and an $80 billion share buyback program. The dividend will be paid on June 26 to shareholders of record as of Thursday. UBS strategist Maxwell Grynakov said in a note on Monday that after the surprise dividend increase, dividend futures rose by at least 2-3 points across the curve, “reflecting expectations for additions to bottom-up consensus expectations from 2027 onwards.” “We believe this could lead to other top-tier SPX companies with healthy FCF (free cash flow) yields to begin paying or increasing dividends as part of their shareholder return programs,” he added. NVDA YTD Mountain Nvidia’s 1-Year Performance The tech sector is paying the largest dividend in the S&P 500 for the first time in history, Grinakov noted. He expects the biggest dividend increases over the next five years to come from technology, primarily Nvidia and Amazon. The latter hasn’t even paid a dividend yet. Still, dividends from big tech companies remain modest, with many yielding less than 1%. Currently, Nvidia’s dividend yield is 0.46%, Apple’s dividend yield is 0.35%, and Microsoft’s dividend yield is 0.85%. Alphabet, which yields 0.25%, also recently announced a dividend increase. The quarterly dividend will be increased by 5% to 22 cents per share. Cash Flow for Both Growth and Dividends There are only four things companies can do with cash: pay down debt, invest in capital expenditures and acquisitions, pay dividends, and buy back stock in share buyback programs, said Kevin Simpson, founder and CEO of Capital Wealth Planning. He is considering NVIDIA as his main dividend growth portfolio. He already has a stake in Covered Call’s growth strategy. With so much cash flowing into big tech companies, it’s only a matter of time before they follow Nvidia’s lead in growth or start paying dividends, he said. “They don’t necessarily have to choose between growth and dividends, because they’re going to have so much free cash flow that I expect them to follow suit,” Simpson said. “Tech companies have the potential to outperform dividend growth across the board.” In fact, Seth Hickle, chief investment officer at Mindset Wealth Management, believes that today’s technology leaders will become tomorrow’s dividend aristocrats. These are companies that have raised their dividends in each of the past 25 years. “While Nvidia’s dividend increase didn’t make sense from a revenue standpoint, I think the signal was important,” he said. “It’s more about the maturity of the company. This is really a sign that the AI leader is evolving into a cash-generating franchise, and I think NVIDIA’s move away from a pure growth story is actually a story of shareholder returns.” For Daniel Peris, author of The Ownership Dividend and head of Federated Hermès’ strategic value dividend group, the tech company’s move toward dividends is not surprising. In a book published in 2024, Perris outlined the paradigm shift expected in the market as dividends come back into fashion. Mr. Perris predicted that dividends would increase once interest rates normalized. He believes the 10-year Treasury yield, currently around 4.5%, is the normalized benchmark rate. But he said his decision was “several years early” because of the lag effect and many payments remain small. In fact, the S&P 500’s dividend yield is a meager 1.01%. But over time, he said, it will be harder for companies to resist pressure to increase dividends, “unless they really come up with some incredible device, like a Mars colony, that defies standard expectations.” “As the benchmark interest rate is normal on a daily, monthly and quarterly basis, it is a reasonable expectation to expect a cash return of the same or better,” Peris said. But Joe Tiguey, portfolio manager at the dividend-focused Rational Equity Armor Fund, doesn’t think many companies will follow in Nvidia’s footsteps. “In the short term, looking at the environment, I think NVIDIA is going to be isolated in this situation at this point,” he said. Who will be next? Simpson is eyeing Amazon as the next possibility to start paying a dividend, but he doesn’t think it’s imminent. “Amazon has preferred to reinvest all available funds back into its business, whether it be in AWS, logistics, advertising, healthcare, AI infrastructure or new growth initiatives,” he said. “What’s changing is the sheer amount of cash that these companies are generating. At some point, shareholders may start asking whether they need to reinvest every incremental dollar or return some of it directly to investors.” AMZN YTD Mountain Amazon Year to Date Mindset Wealth’s Hickle also expects Amazon to start paying dividends at some point in the future, given the pressure from other tech companies. But he also has his eye on other stocks that have a history of increasing dividends or buying back stock. “We have some companies that are on the verge of becoming true dividend powerhouses,” Hickle said. This includes Broadcom, Texas Instruments, Qualcomm, Cisco, and Oracle. All stocks other than Oracle have yields above 1%, with Texas Instruments leading the way with a yield of 1.83%. “We have some more mature tech companies… that have a history of increasing dividends, and I think that will continue.” Equity Armor’s Tigay said he doesn’t expect a ton of dividend increases, but that some other semiconductor companies could follow Nvidia’s lead. “I want to meet AMD,” he said. “AMD will be rewarded by the market if they do that, but what’s more important for AMD is that their best-selling products catch up with Nvidia.”
