Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) is among the most closely watched tech giants in the world. The company’s social media presence has led to steady cash flow growth for investors. I’ve always liked this long-term approach to growth, which is why I believe GOOG stock is worth owning now.
The company’s stock has surged, up 28% year-to-date. Alphabet is likely to see similar upside in the future. The company’s revenue and net income growth should drive such numbers. Let’s discuss why Alphabet is a top pick in this environment.
Now a Dividend Stock
Tech giants like Alphabet have long been considered companies that investors did not want to pay out dividends. Indeed, the company’s cash flows could be much better used as reinvestment into the company’s core business.
After all, Alphabet’s historical return on invested capital is impressive — whether that comes from investors, or the business itself.
That said, tech stocks that have pivoted toward a dividend have done well this year. Alphabet is joining the chorus of companies that are looking to reward investors with more than buybacks.
Doing so invites dividend investors to own the stock, broadening the company’s investor base. Overall, I think it’s a smart move, and the market has agreed.
Alphabet’s robust FCF ensures dividend stability, buoyed by Google, YouTube’s ad revenue of $8.1B in Q1, and Google Cloud’s $9.6B sales.
Its Q1 balance sheet boasted $402.4B in assets and $110.9B in cash equivalents. So long as these numbers trend in the right direction, I like where GOOG stock is headed from here.
Big Money Continues to Bet on Alphabet
Retail investors just can’t move the needle for Alphabet. That’s the reality. Given the company’s size, large hedge fund managers, ETF providers, and other institutional investors (such as pension funds) need to own this stock long term. Thus far, that’s been the case.
In Q3 2024, David Tepper, the billionaire owner of the Carolina Panthers, initiated a position in Alphabet.
However, he notably reduced this position in 2021 and decreased this stake by 10% in Q1. So, the question is whether investors like Tepper will remain committed to GOOG stock, or move toward other more AI or growth-heavy names in this current market.
Despite this reduction, Appaloosa still holds a $316 million stake in GOOG stock. I think many similar funds are in the same place right now. Volatility may occur, but most large investors won’t be deterred.
Buy GOOG Stock
Google’s Q1 2024 results reveal its cloud business success amid criticism of its AI strategy. Google Cloud exceeded expectations, earning $900 million from $9.6 billion revenue.
However, the rise of alternatives like ChatGPT poses a risk to Google’s search revenue. Despite challenges, Alphabet’s YouTube, free cash flow, and growing cloud business position it as a long-term hold.
It’s my view that building a position in GOOG stock on dips makes a lot of sense. Alphabet’s dominance in the world of search and advertising simply won’t go away overnight.
This is a company that’s a free cash flow machine, and it’s now doing more than ever to return capital to shareholders. I like that.
On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
