Meta Platforms, the parent company of Facebook, surprised investors on Thursday by announcing a quarterly dividend of 50 cents per share, totaling $2 annually. This move is expected to make Mark Zuckerberg, the founder and CEO of Meta, one of the highest earners in California, as well as one of its largest taxpayers.
Zuckerberg holds an impressive 13% stake in Meta, amounting to 350 million shares. Due to his supervoting B shares, he has 61% voting control over the company. These details can be found in Meta's 2023 proxy statement. With the introduction of the new dividend, Zuckerberg is estimated to receive around $700 million in annual dividends.
It's worth noting that Zuckerberg has been receiving a symbolic salary of just $1 per year, without any bonuses. His total compensation in 2022, which amounted to $27 million, mostly covered his personal security expenses.
However, this substantial dividend payout will attract considerable taxes for Zuckerberg. According to New York tax expert Robert Willens, he will face a federal tax rate of 20% on dividend income, along with a 3.8% Medicare surcharge. Additionally, the state income-tax rate in California is 13.3%, resulting in a significant tax burden for Zuckerberg.
Unfortunately for him, unlike federal taxes, state and local taxes do not generally offer preferential rates on dividend income compared to earned income. As a result, Willens predicts that Zuckerberg will be subject to an "all-in" tax levy of 37% on these dividends.
Despite the tax implications, Zuckerberg's fortune continues to soar. His stake in Meta Platforms is currently valued at approximately $168 billion, with shares experiencing a notable 21% increase to reach $479 following a strong fourth-quarter performance and positive financial outlook. Zuckerberg now occupies the fourth position on Bloomberg's list of the world's wealthiest individuals, trailing only Elon Musk, LVMH's Bernard Arnault, and Jeff Bezos.
Alphabet: A Strong Candidate for Dividends
Alphabet, the parent company of Google, has long resisted paying dividends, opting instead for stock repurchases to return cash to shareholders. However, with its impressive earnings and robust free cash flow, Alphabet is now being touted as a prime candidate for initiating a dividend program.
Tech giants like Meta (formerly known as Facebook) and Alphabet have been questioned on their reluctance to pay dividends, often citing their focus on reinvesting in areas of growth. Nevertheless, the perception of dividends as a sign of management confidence in the business is gaining prominence among investors.
There may be additional, unspoken reasons why founder-led companies have been hesitant to introduce dividends. Founders with significant equity stakes typically face substantial tax liabilities on dividend payments, providing an underlying deterrent.
Notable companies led by founders, such as Alphabet, Tesla, Amazon.com, and Berkshire Hathaway, have historically refrained from paying dividends. In the case of Berkshire Hathaway, Warren Buffett's strategy of avoiding dividends has allowed him to minimize his annual tax obligations. Buffett's 2015 tax disclosure, prompted by criticism from then-presidential candidate Donald Trump, revealed that he earned $11.5 million in income, most likely from dividend income on personally held stocks, and paid only $1.8 million in federal income taxes.
Buffett's stake in Berkshire Hathaway has now surpassed $125 billion, reaching a record high. Despite accumulating vast wealth, Buffett intends to donate his Berkshire stake after his demise, potentially resulting in comparatively low lifetime tax payments.
If Berkshire Hathaway were to introduce a modest 1% dividend, Buffett would receive over $1 billion in annual income, subject to a 30% federal and state tax rate.
In conclusion, Alphabet stands out as a strong contender for dividends, considering its financial capabilities. By reassessing its approach toward returning cash to shareholders, Alphabet can further demonstrate its commitment to shareholder value.