Nvidia's massive dividend boost could lay the groundwork for other big tech companies to follow suit. The chipmaker has seen "parabolic" demand for its artificial intelligence chips in data centers and recently said it will expand into chips for personal computers — which will " reinvent the PC ," according to CEO Jensen Huang. That demand has been a cash-flow windfall for the company, which recently said it would return even more money to shareholders. It declared a 2,400% dividend increase — from a 1 cent per share quarterly dividend to 25 cents a share — as well as an $80 billion share buyback program. The dividend will be paid on June 26 to shareholders on record as of Thursday. After the surprise dividend increase, dividend futures moved up at least two to three points across the curve, "reflecting the expected addition to the bottom-up consensus estimates for 2027 onwards," UBS strategist Maxwell Grinacoff said in a note Monday. "We think this could potentially open the door for other top-weighted SPX corporates with healthy FCF [free-cash-flow] yields to start paying or increasing dividends as part of their shareholder return programs," he added. NVDA YTD mountain Nvidia one year performance The tech sector is now the largest dividend payer in the S & P 500 for the first time ever, Grinacoff noted. He expects the most dividend growth over the next five years to come from tech, primarily from Nvidia and Amazon . The latter does not even pay a dividend yet. Still, big tech dividends remain small, with many of the yields under 1%. Nvidia currently has a 0.46% dividend yield, while Apple yields 0.35% and Microsoft has a 0.85% dividend yield. Alphabet , which yields 0.25%, also recently announced a dividend increase. It is raising its quarterly dividend by 5% to 22 cents per share. It is payable on June 15 to shareholders of record as of June 8. Cash flow for both growth and dividends Companies have only four things they can do with their cash: pay off debt, invest in capital expenditures or make acquisitions, pay dividends and buy back their own stock in a share repurchase program, said Kevin Simpson, founder and CEO of Capital Wealth Planning, who is considering Nvidia for his flagship dividend growth portfolio. He already owns the stock in his covered call growth strategy. With the enormous amount of cash coming into the big tech companies, it should only be a matter of time before they follow Nvidia's lead and grow or initiate dividends, he said. "They don't necessarily have to choose between growth or dividends, because they're going to have so much free cash flow coming in that I would expect that they will follow suit," Simpson said. "Tech companies could outpace dividend growth across the board." In fact, Seth Hickle, chief investment officer at Mindset Wealth Management, believes today's tech leaders are going to become tomorrow's dividend aristocrats . Those are companies that have raised their payouts in each of the past 25 years. "While Nvidia's dividend increase was not meaningful from an income perspective, I think the signal was important," he said. "It's more about the maturity of a company. It's really a sign that AI leaders are evolving into some cash-generating franchises and I think that Nvidia's transition from the pure growth story is really more of a shareholder return story." Tech companies' move towards dividends isn't surprising to Daniel Peris, author of "The Ownership Dividend," and head of the strategic value dividend group at Federated Hermes. In his book, published in 2024, Peris outlined the paradigm shift he was expecting in the market as dividends come back in vogue. Peris anticipated that as interest rates normalized, dividends would increase. He believes the current 10-year Treasury yield, now at around 4.5%, is a normalized base rate. However, there has been a lag effect and many payouts remain small, which makes his call a "couple years early," he said. In fact, the S & P 500 dividend yield is at a paltry 1.01%. Yet, over the course of time it will be harder for companies to resist the pressure to raise dividends, "unless they truly do come up with such incredible widgets like colonies on Mars that defy any standard expectations," he said. "With each passing day or month or quarter of base rates that are normal, the expectation of a cash return that is in line with or better than that is a reasonable expectation," Peris said. However, Joe Tigay, portfolio manager of the dividend-focused Rational Equity Armor Fund, doesn't see a many following in Nvidia's dividend-raising footsteps. "On the short-term side, looking at the environment, I think Nvidia is going to be standing alone right now in this backdrop," he said. Who could be next? Simpson has his eye on Amazon for the next potential dividend initiation — although he doesn't believe it is imminent. "Amazon has preferred to reinvest every available dollar back into the business, whether that's AWS, logistics, advertising, healthcare, AI infrastructure, or new growth initiatives," he said. "What's changing is the sheer amount of cash these businesses are generating. At some point, shareholders may begin asking whether every incremental dollar needs to be reinvested or whether some should be returned directly to investors." AMZN YTD mountain Amazon year to date Mindset Wealth's Hickle also expects Amazon to start paying a dividend at some point in the future, given the pressures from other tech companies. However, he has set his sights on other names that have a history of increasing their dividends and buying back shares. "We have some companies that are on the cusp of becoming real dividend powerhouses," Hickle said. That includes Broadcom , Texas Instruments , Qualcomm , Cisco and Oracle . Other than Oracle, the stocks all have yields over 1%, with Texas Instruments sitting at the top with a 1.83% yield. "We have some of these more mature tech companies [that] … have a history of increasing their dividend and I suspect that will continue." While Equity Armor's Tigay doesn't anticipate an influx of dividend increases, he said it's possible some other chip companies may follow Nvidia's lead. "I'd love to see AMD ," he said. "AMD would be rewarded by the market if they did that, but more important for AMD is just having products that are selling catching up to Nvidia."
<small>Source: CNBC</small>
