Will Facebook Pay A Dividend in 2013

Down about 42% from the $45 high after its initial public offering, Facebook stock (Nasdaq: FB) needs a way to keep investor interest into 2013. How about paying a dividend? Facebook stock, at around $26, is up about 20% over the past few months, but still far from its $28 IPO price. But with nearly $10.5 billion in cash, a Facebook dividend could drive the stock higher by making it more attractive to a wider range of investors.Here's why CEO Mark Zuckerberg should consider a Facebook stock dividend for the New Year.

A 2% dividend starting next quarter would require 39 cents a share, or about $850 million a year, for a payout ratio of about 54%. That's a very affordable payout ratio, easily leaving room for annual capital expenditures of $500 million. As earnings rise for Facebook, the payout ratio will fall. Facebook could boost its dividend by a penny a quarter, while bringing the payout ratio down at the same time from the estimated increase in earnings of 16 cents a share. Facebook's superior price-to-cash ratio and projected five-year growth rate demonstrate how it could easily pay a healthy dividend and increase it annually.

Source: Money Morning

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