The technology companies nicknamed the "Magnificent Seven" have a combined value of $17.2 trillion, which represents one-third of the entire value of the S&P 500 (^GSPC -0.20%). Those stocks delivered an average return of 60% during 2024, making them responsible for more than half of the S&P's 25% gain.
In other words, investors whose portfolios didn't include the Magnificent Seven stocks last year probably underperformed the broader market by a wide margin. Since these seven companies dominate different areas of the technology industry, including new segments like artificial intelligence (AI), they are likely to continue driving the S&P 500 higher.
But some investors don't just want massive capital gains. They want regular income, and some Magnificent Seven stocks also pay dividends. Unfortunately, as you'll see below, dividend investors won't get big payouts even from a massive $350,000 investment split equally across the seven stocks.
What's driving the Magnificent Seven now
AI is the primary growth driver across most of the tech sector right now, which is why Nvidia (NVDA -1.57%) was the best-performing stock in the Magnificent Seven last year. The company's graphics processing units (GPUs) are the top choice for those who are developing AI models, and demand is outstripping supply because every tech company needs them to keep up with the competition.
Microsoft (MSFT -0.06%), Amazon (AMZN -1.03%), and Alphabet (GOOGL -0.95%) (GOOG -0.90%) are among Nvidia's biggest customers. They are filling their data centers with Nvidia's chips to develop their own AI software, but they also rent computing capacity to businesses and other AI developers. Their customers can also access state-of-the-art large language models (LLMs) from companies like OpenAI and Anthropic via Microsoft Azure, Amazon Web Services, and Google Cloud.
Meta Platforms (META -0.68%) has embedded AI into its recommendation engines on Facebook and Instagram with the goal of more accurately curating the content they deliver to each user to suit their preferences. This keeps people online for longer periods of time, which allows Meta to show them more ads and earn more revenue. And later this year, it expects to launch its Llama 4 LLM, which could be the most advanced in the industry.
Then there is Apple (AAPL -3.82%), which is on track to become the largest distributor of AI to consumers through its 2.2 billion active devices worldwide. The company recently debuted its Apple Intelligence software with a suite of new features that work only on its latest iPhones, iPads, and Mac computers. Apple Intelligence will create new opportunities for the company to generate software revenue, and also may encourage customers to upgrade their devices sooner.
Finally, Tesla (TSLA -4.13%) might be known as one of the world's largest manufacturers of electric vehicles, but Wall Street is increasingly bullish about the prospects of its full self-driving software (FSD), which could transform the company's economics. FSD will power the new Cybercab, a robotaxi that will offer fully autonomous ride-hailing services to earn revenue for Tesla around the clock in the future.
Image source: Getty Images.
Five of the Magnificent Seven stocks pay modest dividends
The Magnificent Seven companies are cash-generating machines. Some of them make so much money that they can't possibly reinvest it all back into their businesses to drive growth, so they return it to shareholders. Some of that money goes toward paying dividends.
Apple, Microsoft, Nvidia, Meta Platforms, and Alphabet pay dividends quarterly. However, none of them has a dividend yield of more than 0.75% based on their recent share prices.
MSFT Dividend Yield data by YCharts.
Yields change regularly for two reasons: First, a company might raise or lower its dividend payment. Second, a stock might rise or fall in value, which would change its yield on paper. It doesn't mean the payout changes in dollar terms, it just changes as a percentage of the current value of your investment.
Microsoft offers investors the highest yield among the group, and although it may seem small at face value, the company paid out a whopping $21.7 billion in dividends during its last fiscal year (which ended June 30). Because Microsoft has a market capitalization of $3.1 trillion, though, that translates into a relatively small yield.
If you invested $350,000 in the Magnificent Seven (split equally with $50,000 invested into each stock), you would earn an average dividend yield of 0.37% on $250,000, while earning no yield on the other $100,000 (because Amazon and Tesla don't offer a dividend). That works out to total annual dividend payments across the portfolio of about $925.
That's a paltry sum even compared to what you could earn in a high-yield savings account with your bank right now. However, it's a nice bonus on top of the incredible capital growth.
How the Magnificent Seven return more capital to shareholders
Dividends aren't the only way for companies to reward shareholders. They can also use stock buybacks, repurchasing their own shares on the open market. This shrinks the number of shares in circulation, which should organically increase the price per share proportionately. In the end, each remaining shareholder effectively owns a larger slice of the company than they did before.
Stock buybacks are also flexible. Companies can execute them at times of their choosing, such as when they view their shares as being undervalued.
Because of those benefits, repurchases make a much larger portion of the capital returned to shareholders in Magnificent Seven stocks than dividends. Five of the Magnificent Seven companies have repurchased stock over the last four quarters, spending a combined $236.9 billion:
AAPL Stock Buybacks (TTM) data by YCharts.
Amazon and Tesla haven't been buying back stock lately, but both are profitable, so it might be an option for them in the future. Plus, Amazon repurchased $6 billion worth of stock back in 2022, so it's no stranger to handing some cash back to investors this way.
With all of that said, the best reason to own the Magnificent Seven stocks is their incredible track record of delivering capital growth. That's likely to continue for the foreseeable future because the AI revolution is still in its early stages, and depending on which Wall Street forecast you rely upon, it could add somewhere between $15.7 trillion (PwC) and $200 trillion (Ark Invest) to the global economy by 2030.
The Magnificent Seven will play an important role in creating that value, so investors should definitely consider owning these stocks for the long term. Any dividend payments they receive along the way will just be a bonus.
