Key Points
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Nvidia has paid about $6.2 billion in dividends so far this year.
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The majority of the company's capital-return program is allocated toward share buybacks, which have totaled nearly $40 billion this year.
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While raising its dividend was a nice feature, Nvidia's yield is still only 0.44%.
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Nvidia (NASDAQ: NVDA) stock's run throughout the artificial intelligence (AI) revolution is the kind of story people talk about like folklore. If you invested in Nvidia on Nov. 30, 2022 -- the day OpenAI released ChatGPT to the public -- shares closed around $16.87 on a split-adjusted basis. Given their current level around $225, that's roughly a 1,230% gain. This would make a $10,000 investment at that time worth more than $132,000 today. That is not a typo.
The problem is Nvidia stock doesn't feel like that multibagger trade anymore. The easy valuation expansion is gone because investors are hunting the next AI breakout candidate. That shift helps explain another headline: back in May, Nvidia raised its quarterly dividend from $0.01 to $0.25 a share -- a 2,400% increase.
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While the old dividend payout was a courtesy, the new one looks like an attempt to appeal to a broader shareholder base: pensions, passive income investors, or anyone else who needs a reason to stick around after the initial moonshot rally.
Nvidia's massive dividend raise is still a small check overall
During Nvidia's fiscal first-quarter earnings report, the company announced that its board of directors approved a dividend increase, making the first $0.25 payment on June 26 to holders of record as of June 4. Another $0.25 went ex-dividend on Sept. 10, payable Oct. 1.
Here's the breakdown of cash that has actually left the building throughout Nvidia's fiscal 2027. During the first quarter, the company was still on the penny dividend, paying about $243 million. After the raise, Nvidia's dividend payout jumped to $6.0 billion in the second quarter. That is a real number in isolation, but next to the rest of the company's capital-return program it is just a side dish.
Nvidia spent about $19 billion in Q1 and about $20 billion in Q2 on share buybacks. Management has said it wants to return 50% or more of free cash flow to shareholders, net of strategic uses. After adding an $80 billion repurchase authorization in May, roughly $99 billion was still available at the end of the second quarter.
So yes, Nvidia's dividend got 25 times bigger. But for now, the company is using buybacks as the main driver of shareholder rewards.
What a $10,000 investment in Nvidia actually pays you
The math below illustrates the magnitude of the 2,400% headline. At about $225 a share, $10,000 buys roughly 44 shares of Nvidia. The new annual dividend payout is $1.00 a share, or $0.25 each quarter. This equates to:
- Annual passive income: $44
- Quarterly check: $11
- Monthly: $3.70
Before the raise, these same 44 shares only paid $0.04 a year, or less than $2 in aggregate. This is all to show that Nvidia's dividend increase looks enormous on a percentage basis simply because the starting point was so small. In reality, the dollar increase is the equivalent of a couple of streaming subscriptions.
Nvidia isn't a dividend stock just yet
Calling Nvidia a dividend stock is a little misleading. A 0.44% dividend yield does not compete with those seen in utilities, REITs, or business development companies (BDCs). Nobody is going to fund their retirement with $44 on a $10,000 sum.
The more prudent interpretation is that Nvidia is a growth company that suddenly has more cash than it can comfortably spend on chips, software, and strategic investments. Stock buybacks will continue to shrink the company's share count and juice earnings per share (EPS). Meanwhile, a higher dividend is the more visible aspect you can see in your brokerage account.
Both programs can keep rising if free cash flow continues to compound, but that does not turn Nvidia into Realty Income overnight. The takeaway here is investors should still own Nvidia for the core business and its upside in the AI infrastructure era. While the 2,400% dividend raise is real, and more hikes would not be shocking, it does not make Nvidia a lucrative passive-income generator.
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Adam Spatacco has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia and Realty Income. The Motley Fool has a disclosure policy.