Being that none of the F.A.N.G. names currently play a shareholder dividend, I can’t blame investors who require a certain yield threshold from their investments for showing disinterest in these companies that don’t meet their investment goals.

There are two groups of readers who I think will benefit from reading this piece: the younger investors who follow my work with very long time horizons ahead of them in the markets and those individuals who hear F.A.N.G. and simply turn up their noses, as if these companies and all of the hype that surrounds them is nothing more than a scam driven by market hysteria and Jim Cramer’s histrionics.

Back in 2013, Jim Cramer began hyping the F.A.N.G. names after his colleague at RealMoney.com, Bob Lang, came up with the nickname for the four biggest growth stocks of the time: Facebook Inc (NASDAQ:FB), Amazon.com, Inc. (NASDAQ:AMZN), Netflix, Inc. (NASDAQ:NFLX), and Google — which has since changed its name to Alphabet Inc (NASDAQ:GOOGL).  Here’s what I believe to be the original article breaking down the F.A.N.G. names.  Say what you will about Cramer, but he certainly nailed this call.

Let’s take a look at F.A.N.G.’s massive out performance over the last 12 months.  If you thought the broader indexes went on a run during 2017 then you’ll be taken aback by F.A.N.G.’s performance.

But even more impressive than their 2017 returns are the 5-year returns produced by the F.A.N.G. names.  As you can see below, anyone holding these stocks has done quite well for themselves since Mr. Lang and Mr. Cramer created the F.A.N.G. bandwagon.

So, let’s start breaking down these companies individually.  I’ll also be discussing the speculative likelihood of shareholder returns (and especially dividends) when looking at the fundamentals, because while income is far from the forefront of my mind when looking at my F.A.N.G. exposure, I also wouldn’t be totally surprised if 50 years from now, several, if not all of these four companies have evolved into dividend aristocrats.

The Future Dividend Potential of F.A.N.G. Stocks: Facebook Inc (FB)

I recently published an article over at Seeking Alpha regarding my belief that Mark Zuckerberg should consider initiating a shareholder dividend.  That argument was based upon the fact that Facebook is relying on variables that are out of its control: population growth and infrastructure development that will allow further internet penetration world wide, for its future growth.  For more in-depth analysis of this argument, please refer to the link above.

I believe that Facebook still has a long growth runway ahead of its because it still has platforms to better monetize; however, I don’t think investors should expect to see ~40-50% top-line growth over the long-term and my fear is that pricing premiums will contract, putting pressure on the company’s share price.

I offered a dividend as a way to counteract any multiple contraction due to slowing growth; my view is that a strongly growing dividend can serve as a buoy for companies to latch on to as they transition from the high growth phase to a more mature operation.

I stand by this initial ~$2.70 dividend suggestion; If Zuckerberg were to head down the dividend path, he would open up ownership of his stock to a much wider variety of shareholders (both retail and institutional) who’re looking for yield.  Because of Facebook’s massive profits, I think this company is very well suited to be a dividend growth company and could potentially develop into an aristocrat over time.

It does worry me that ~98% of Facebook’s revenues come from digital advertising, but then again, traditional media companies have done quiet well over the years relying on advertising dollars, proving that this is a sustainable long-term business model (so long as you have the necessary eyeballs).  But then again, without a doubt, Facebook has the necessary eyeballs.  ~65% of the world’s population (outside of China, where Facebook does not currently operate) uses a Facebook platform on a monthly basis.

The Future Dividend Potential of F.A.N.G. Stocks: Amazon.com, Inc. (AMZN)

I won’t spend nearly as much time delving into Amazon here at Sure Dividend because I highly doubt that this company will ever pay its shareholders a dividend.  I don’t even expect to see meaningful shareholder buybacks.  Or, I should say, that I don’t expect to see either of these two things as long as Jeff Bezos is in charge.

They’re simply not in his DNA.  Mr. Bezos is all about growth.  He’s all about disruption.  He’s all about taking market share and dedicating money towards shareholder returns doesn’t help him to achieve these goals.  And you know what?  I’m just fine with that.

I don’t think that there’s a better CEO, or salesman, than Jeff Bezos on the planet.  I oftentimes talk about buying management teams when I purchase stock and that is surely the case when it comes to Amazon.  When you look at this company’s fundamentals, it doesn’t take long to realize that they’re all over the place.  Amazon has done an absolutely amazing job growing its top-line, but it has razor thin margins, which is typically something that I would avoid.  Cash flows continue to rise but this growth isn’t trickling down to the bottom line.

As I said before, I don’t see Bezos slowing down anytime soon.  Amazon has made a habit of using innovative technology to disrupt any market/industry that appears to be bloated.  In attempt to take market share, Amazon is willing to accept lower margins.  Many view these undercutting tactics as anti-competitive, but I can hardly blame Bezos; instead, I blame the markets for continuing to place such a high premium on Amazon without bottom-line production.

This is why my biggest fear regarding my Amazon position isn’t valuation, but instead, government oversight and/or regulation.  The vast majority of retail sales are still made at physical locations and I believe the cloud game is still in its early innings.  This points towards room for ample growing moving forward in its primary markets (without factoring in continued disruption in ancillary spaces).

However, Amazon’s dominance in eCommerce has changed the perception of the game and I worry that many Americans (and politicians) already believe that Amazon (along with several of the other most powerful tech companies, including the other F.A.N.G. names) is becoming too powerful and should be either broken up or regulated.  As a shareholder, I like the high tech conglomerate structure, giving Bezos the cash flows he requires to go after new markets.  Amazon has several segments that would be attractive stand alone businesses, but I think the entire pie is a much more powerful force than the individual parts.

The Future Dividend Potential of F.A.N.G. Stocks: Netflix, Inc. (NFLX)

Netflix is the only F.A.N.G. name that I don’t personally own.  Unlike the other companies included in this acronym, I’ve never been able to buy into this secular growth story.  Actually, let me rephrase myself: I’m a big believer in the new age, mobile based, a la carte type of on demand content, but I don’t believe that Netflix has created a moat strong enough to defend itself against its competition and therefore, I have a very hard time believing that this company deserves the multiple that the market has benevolently bestowed upon it.

Unlike Facebook, which faces little notable competition in its most profitable market (North America), Netflix is battling for screen time with some of the richest and most powerful companies out there.  Apple, Amazon, Alphabet, the aforementioned Disney, Comcast, AT&T, and other behemoths, such as Verizon (VZ) in the traditional media/distribution space.

There has been so much consolidation in the media space as distribution companies look to diversify their revenue streams and differentiate their pipes from their competitors’ by adding original content and your traditional production companies look to add distribution and/or alternative experiential products/services (theme parks, cruise ships, etc).

We’re witnessing a land grab for content right now with the AT&T/Time Warner and Disney/Fox deals.  I believe that Netflix’s growing power has inspired these deals.  Without a doubt, Netflix was the first mover in the over the top content arena, but only time will tell if its brand and services will stand up to this intense showdown.

Netflix is expected to produce an EPS of $1.25 for FY 2017 and $2.29 in FY 2018.  If the company hits these analyst estimates, it will represent fantastic bottom-line growth, but the company is still a long way from having the necessary earnings to justify its current share price relative to other large media peers and FCF/share to pay a dividend.

I’d never bet against any of the F.A.N.G. names with a short position, but I also haven’t been willing to give myself speculative exposure to this company’s equity because of its unattractive fundamentals.  Granted, this decision hasn’t been a great one in recent years as Netflix continues to create wonderful wealth for its shareholders (on paper, at least), so feel free to take my bearishness here with a grain of salt.

I think that Facebook has the potential to be a dividend aristocrat and I would say the same thing about Amazon if it wasn’t for Mr. Bezos, but at the end of the day, I think Netflix simply faces too many risks.  I have a very hard time imaging a scenario where this company pays a dividend or puts in place a significant buyback program, which is why I’ve decided to place my bets in the media/entertainment industry elsewhere.

The Future Dividend Potential of F.A.N.G. Stocks: Alphabet Inc (GOOGL)

Alphabet is my third largest position, behind Apple and Disney, with a 4.96% weighting.  It’s by and large my biggest F.A.N.G. position, more than twice the size of second place, Facebook.  Why?  Because Alphabet is a wildly profitable company with an incredibly wide moat (albeit, with a somewhat narrow focus with regard to ~90% of sales/profits coming from digital ads) and a balance sheet to die for.

I would say that Alphabet is probably the most mature company of the F.A.N.G. names.  Alphabet is still in the habit of posting strong double digit top-line growth, but unlike several of the other high growth names, Alphabet is highly profitable, allowing conservative investors like me to evaluate it on a traditional P/E basis.  Even after its massive run-up, from from ~$800 to $1,100 over the last year or so, Alphabet is only trading for ~27x 2018 EPS expectations.  27x isn’t cheap, but it’s not bad at all a company that is growing its bottom line in the 20% range.

When I look at the F.A.N.G. names, I think Alphabet is the second most likely, behind Facebook, to institute a shareholder dividend and become an eventual Dividend Aristocrat.  Alphabet has a stronger financial position than Facebook at the moment, and a slightly more diversified revenue stream in the present, but I think Alphabet has some of the same DNA that I talked about regarding Amazon and Bezos, with a mind to solve problems outside of its current core competency, which could be capital intensive and potentially take away from shareholder returns.

Alphabet is best known for its Google properties, where it dominates search and generates a ton of cash with digital ads; however, Alphabet is basically a venture capitalist firm with its “other bets” category and operations in the cloud, AI, healthcare, automation (both of the home with hardware and driverless cars, with Waymo’s software), just to mention a few.  Alphabet’s willingness to broaden its horizons and compete in various high growth areas of the tech sector seems to imply that the company is more interested in investing its cash flows in growth initiatives rather than shareholder returns.

Because of its dominant market position in the search space, I worry about government oversight/regulation.  We’ve already seen Alphabet face issues in Europe about anti-competitive practices/tax issues and I expect that this trend will continue as foreign governments attempt to extract more cash from rich American companies.

Alphabet has nearly $100b in cash on the balance sheet (much of which is held overseas) so I think we’ll soon find out just how generous Alphabet’s plans to be towards shareholders during the repatriation process.  A large buyback/shareholder dividend would come as a surprise to me, but I don’t think either is totally out of the question due to the large amounts of cash that Alphabet now has cheaper access to.

What’s more, this company has very little debt (just a tad bit less than $4b of long-term debt, according to Morningstar) meaning that paying down debt, which is something that I expect to see elsewhere in the corporate world, is not something that Alphabet management has to concern itself with moving forward.