Zip Co Ltd (ASX: Z1P) now has a special place on the ASX share market. With the departure of buy now, pay later (BNPL) pioneer Afterpay from the ASX, and into the arms of Block Inc (ASX: SQ2), Zip is now the ASX's largest pureplay BNPL share. But that hasn't stopped the Zip share price from having a pretty horrible year thus far.
It's only March, but Zip shares have lost close to 65% of their value in 2022 alone. Over the past 12 months, the losses now stand at almost 80%.
Yet investors seem to be paying more attention to Zip lately. It was only ten days ago that Zip hit a new 52-week low of $1.40 a share. But since then, the company has gained around 10%.
So with investor interest in Zip seeming to rise of late, many investors might be asking the question: do Zip shares pay a dividend?
After all, Zip is quite a large ASX share, with a market capitalisation of more than $1 billion. It's also in a growing space in BNPL, and has been clocking some healthy growth numbers in recent years. In its most recent earnings report, the company reported revenue growth of 89%, as well as a 147% rise in transaction numbers.
Do Zip shares pay a dividend?
Well, unfortunately, the answer is a resounding no.
Zip does not pay a dividend. In fact, Zip shares have never paid a dividend. And probably won't for some time.
See, for a company to pay a dividend, it first needs to break even on its bottom line. Dividends are typically paid out of earnings or profits. And although Zip did report some arguably impressive growth figures in February, it also reported a loss before tax of $214.2 million for the half.
Dividends are arguably one of the worst ways a company can spend money from a growth perspective.
When a company pays a dividend, the money goes out the door to shareholders, never to return. The cash can't be reinvested, used to pay down debt, shore up finances or otherwise benefit the company in any other way. It only benefits shareholders at the time.
Thus, companies that typically pay out dividends tend to be consistently profitable, and have spare cash left over after accounting for needs like the ones listed above.
Since Zip is not even profitable yet, it doesn't have the capacity to fund a dividend. But this isn't necessarily a bad thing. Zip is still in its 'growth phase' and is choosing to use its revenues and capital for other purposes, like expansion. Thus, its shareholders are probably not expecting to receive income from their Zip shares anytime soon.
Perhaps Zip will be an ASX 200 dividend share one day. But that day is not today.
