Why you need to own Google stock in 2025 and beyond

Alphabet, the parent company of Google, just reported earnings, and their stock is up about 5% after hours. Today, I'm going to dive into their full earnings report and explain why they did so well and why the stock is going up. And more broadly, I'm going to talk about why I made Alphabet into a core position of my dividend growth stock portfolio. I've been buying a lot of it over the past couple of months, and it's now the fourth largest position in my account, valued at $23,000. And I'll give you a little bit of a spoiler alert. I think Alphabet is poised to have a great total return and probably beat the market in the coming years and even decade. Also, even after going up 5% after hours, it's still an attractive valuation. So let's dive into the earnings results. My name is Zach. This is Dividend Data, and you should leave a like and subscribe to the channel if you enjoy the video. To summarize the earnings results, I'm going to head over to the AI Analyst over on DividendData.com and ask for a summary of the latest quarter for Alphabet. And spoiler alert, they completely crushed it. For Q1 2025, total revenue came in at $90.2 billion, up 12% year-over-year. Google Services revenue came in at $77.3 billion, up 10% year-over-year. That includes their entire advertising business with Google Search and YouTube ads, and also their subscription products, whether it's YouTube Premium or Google Workplace. Google Cloud revenue came in at $12.3 billion, which is a 28% increase year-over-year. Overall operating income increased to 20% year-over-year. Operating margin expanded to 34%. Net income for the quarter increased by 46% year-over-year. Earnings per share for the quarter increased 49% year-over-year to $2.81. And if we go and head over to Earnings Hub, which is the official earnings source for Dividend Data, you can see that they beat earnings per share estimates for this quarter by 39.11%. Panelists were expecting $2.02 of earnings per and they did $2.81. They also beat on revenue by 1.5%. And for us dividend investors, they increased the quarterly dividend payment by 5%. So that's the first dividend increase for Alphabet stock. And the pattern of annual increases has now started. Now 5% is definitely on the low end, considering how well their business is doing. But I think I know where they got this number from, because there are basically three big tech companies that just started paying dividends in the past year and a half. That's Alphabet, Meta, and Salesforce. Meta just had their first dividend increase, which was also 5%. So I'm glad they've started paying dividends and are actually growing them. But the dividend growth is still slow right now. But that does not mean they're not returning capital to shareholders. Alphabet just announced an additional $70 billion in share repurchases. That is a lot of money. So what that means is they're going to be buying back a lot of That will happen over the coming years. So not only is Alphabet's business financially very strong right now, they are still a leading AI company. And if you hang out on the tech side of Twitter or X or whatever, all you see is how Google is dying and no one's using Google search anymore. But the reality is anything but that. If we head over to the latest results for Alphabet stock, the CEO Sundar Pichai gave a statement where he updated on the company. He talked about But this is the big thing. Google search is still growing. He says that search saw continued strong growth boosted by the engagement we're seeing with features like AI overviews, which now has 1.5 billion users per month. People say Google search is dying, but the reality is Google search is getting even better. And the AI actually just makes it a better product. Other notable things is that Google's paid subscriptions business is growing significantly. That includes things like YouTube Premium and Google One. They passed 270 million paid subscriptions and Google Cloud growth continued at a high rate. If you don't know, Google Cloud is the third place competitor behind Microsoft Azure and Amazon Web Services. But all of these companies are growing significantly. And right now, AI is one of the big growth levers in that business. And as you analyze a company like Google, primarily, you're basically just looking at the advertising business. That's $66 billion of revenue. And this is also extremely high margin revenue as well. And of that, Google search is $50.7 billion. So if you're analyzing this company, Google search is the cash cow that drives everything. But the rest of Google's business is still growing. YouTube is becoming huge, their subscriptions are growing, and Google Cloud is growing at a high rate. And in terms of operating income, Google Cloud is becoming far more significant. In Q1 2024, they had $900 million of operating income, and now that's up to $2.1 billion in the latest quarter. But again, I want to emphasize, if you're analyzing the company, pretty much all of your focus should be on Google search because that's the cash cow. And Google services operating income grew by nearly $5 billion year over year. So as we take a full picture look at Alphabet stock, it still remains incredibly attractive at these prices. It's trading at around 20 times earnings over the trailing 12 months. Prior to this increase, the dividend yield was 0.5%. And by the way, that's with a 7 to 10% payout ratio. And prior to even including this latest quarter, earnings per share was already at all time highs and growing at a high rate. And this growth at Alphabet is the core reason why the stock price has done so well over the past few decades. And expectations are for earnings growth to remain high in the coming years. Analysts were projecting 10% earnings growth in 2025. It seems like they might crush that. And then more than double digit earnings growth in the coming years. The 2029 PE ratio based on today's prices is 10. And earlier this week when I was buying Alphabet stock, that was at 9. Alphabet is trading like a value stock, even though it's still a very high growth company. One of the leading AI companies in the world, one of the best big tech companies in the world, and has an incredible balance sheet and strong growth. If we just take a look through their key financials, you can see revenue per share has grown at a 10 year compound annual growth rate of 19.14%. Free cash flow per share has grown at a 10 year compound annual growth rate of 21.35%. However, I will dive a little bit more into this around what I think is the biggest risk about investing in Alphabet stock. Outside of any possible Google search decline, which I personally don't think is going to happen, there is some risk of it, but there really isn't any evidence yet. If we look at their balance sheet, you can see that they continue to grow their assets far faster than their liabilities, and their shareholder equity just has boomed over time, over $325 billion as of last quarter. The company has a very strong cash position with $95.6 billion in cash and short term investments. Again, this is based on Q4 2024. Dividend data will update with the latest Q1 2025 data probably tonight or early tomorrow. But financially, this company is in such a dominant position, they have negative $70 billion of net debt. In fiscal 2024, they had $125 billion in cash from operations and $72 billion of free cash flow. Now, I told you that I'd mentioned a negative, and the biggest negative is that they're ramping up their capital expenditure significantly to invest in these AI data centers. And the risk in that is that they don't get a good return on investment for all of this tens of billions of dollars they're spending. You've already seen Microsoft and Amazon put a pause on their spending, and they've stopped ramping up in this arms race. However, Alphabet last quarter said they were going to spend over $70 billion in fiscal 2025. And you can see that just in the past year, they've went from $28 billion over the trailing 12 months to $52.5 billion in the trailing 12 months of CapEx. And they seem like they're to continue ramping it up. Now, from a business perspective, I'm okay with Alphabet doing this, because I do think they have to be a leader in AI. And they are very cash rich, and for years had nothing really to do with the money. And now they basically have a clear thing to reinvest in. But still, if we look at the growth rates for CapEx, I don't want to see this growing 60% year over year. Because what that's going to mean is that free cash flow doesn't grow very much, which is probably why the dividend didn't grow that much. Alphabet is making more money than ever, but they're also reinvesting way more money than ever. So although dividend growth may be slow right now, I think overall Alphabet is poised to be a great stock in terms of total return for probably decades to come, especially at this valuation. That's why I've made Alphabet into a core position in my dividend growth stock portfolio. And I will actually continue buying if there are any sell offs. And by the way, I've been buying a lot of stocks and I did a little bit of recomposition in my portfolio. So if you want to learn more about that, please stay tuned for my next portfolio update video in the coming week. Subscribe to the channel and you can get an updated look at my entire portfolio and all my buys and sells every single month. And if you want to use the stock research tool I showed throughout, all of this is available at DividendData.com. That includes the stock analysis tool, the AI Analyst, and you can actually get a live look at my portfolio if you head over to Zach's Research and click Zach's Dividend Portfolio. That way you can get a live look at my entire account. With that said, thanks for watching and I'll see you in the next video.