Nvidia Returned a Record $26 Billion to Shareholders. Here's Why That Matters.

Nvidia (NASDAQ: NVDA) isn't a stock most investors buy for the dividend. Until recently, its payout was so small that its trailing dividend yield sat near 0.02%. But in its fiscal second quarter of 2027, Nvidia returned $26 billion to shareholders through share repurchases and dividends -- including a 25-fold jump in its quarterly dividend to $0.25 per share.

That matters, because Nvidia is starting to send more of the free cash flow it is raking in from the AI data center build-out back to shareholders, even as revenue accelerates. Nvidia could become one of the market's most compelling dividend growth stories.

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Nvidia plans to return half of its free cash flow

On the fiscal Q2 2027 earnings call in August, CFO Colette Kress said Nvidia plans to return 50% or more of free cash flow, net of strategic uses, through buybacks and dividends. Management didn't spell out "strategic uses," but it likely includes acquisitions, equity investments, and similar uses of excess cash.

Most of that return will probably still come through repurchases. Buybacks reduce shares outstanding, which can lift earnings per share -- and because stocks trade on earnings multiples, that can amplify returns over time.

Over the past five years, Nvidia has reduced its share count by 3.5%, but this new framework could accelerate buybacks. Nvidia repurchased nearly as much stock in fiscal Q2 alone as it bought in all of fiscal 2025 ($33.7 billion). It spend $40 billion on buybacks in fiscal 2026 (ending in January).

The dividend could get more interesting, too. Nvidia generated $127 billion in trailing-12-month free cash flow (the cash left over after operating costs and capital spending). The $6 billion quarterly dividend payment is $24 billion annualized, or 18% of that free cash flow -- and Wall Street expects free cash flow to climb sharply over the next three years.

The dividend could grow proportionately with free cash flow

Analysts expect Nvidia's free cash flow to reach $441 billion by fiscal 2029. If the dividend payout stays roughly proportional to free cash flow, the quarterly dividend could rise at least 3x over the next three years to roughly $0.75 per quarter, or $2.25 per year.

Even after the recent increase, Nvidia's forward yield on its current payout is about 0.45% -- not much compared with the S&P 500's 1% yield. But if Nvidia's cash flow expands as analysts expect and it raises the dividend in proportion, the yield on today's share price could approach 1% over the next three years.

This makes Nvidia a compelling dividend growth stock. Nvidia's revenue jumped 106% year over year in fiscal Q2 of 2027. While top cloud companies like Amazon, Microsoft, and Alphabet remain major drivers of its revenue, Nvidia also reported a 138% year-over-year increase in revenue from smaller AI start-ups, industrials, and enterprise customers -- a segment that nearly matched revenue from big tech.

Sometimes companies increase their capital returns when they are running out of growth opportunities, but that doesn't seem to be the case for Nvidia. The stepped-up capital returns suggest that management expects sufficient growth to enable it to return a larger share of cash to shareholders. That supports the long-term case for holding the stock.

John Ballard has positions in Amazon and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.