Prediction: Netflix Will Begin Paying a Dividend in 2027 and Beat the S&P 500 During the Next Decade

Since its initial public offering in May 2002, Netflix (NASDAQ: NFLX) has delivered a mind numbing 52,150% return -- making it a generational wealth builder for long-term investors. But during the past five years, it may surprise you to learn that Netflix has produced a negative 7% return while the Nasdaq Composite (NASDAQINDEX: ^IXIC) has jumped 75% and the S&P 500 (SNPINDEX: ^GSPC) has popped 66%.

Netflix is at its lowest level in more than two years. Here's why Netflix has gone from a market darling to the bargain barrel, why I predict it will begin paying a dividend, and why it's a buying opportunity for long-term investors.

Image source: Netflix.

Netflix's trailing 12-month revenue hits $50 billion

In its first quarter 2024 shareholder letter, Netflix said it would stop reporting quarterly membership numbers and average revenue per membership in 2025, preferring instead to focus on revenue, operating margins, and engagement (time spent) on its platform.

Netflix partially backed up that decision, as its revenue and earnings are at all-time highs, and operating margins have expanded nicely. But those figures are inflated by a one-time $2.8 billion termination fee from Skydance -- which outbid Netflix for Warner Bros. Discovery.

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Engagement has been solid, but Netflix isn't exactly taking market share either. According to Nielsen's August data, Netflix accounted for 7.7% of U.S. monthly TV viewing, well ahead of its streaming peers but lagging significantly behind Alphabet-owned YouTube's 15.8%.

Ads are forecasted at just 5.3% of total revenue

Netflix's lower-cost ad-supported tier has been a key driver of higher engagement and TV time. But Netflix is now projecting $2.7 billion in full-year 2026 advertising revenue, down from an earlier forecast of $3 billion. Based on company estimates for $51.1 billion in full-year revenue, advertising accounts for just 5.3% of total revenue -- underscoring how Netflix relies heavily on its ad-free standard and premium subscriptions. However, that isn't necessarily a bad thing.

A more engaged audience supports spending on high-quality programming and is likely more accepting of price increases. And if Netflix expects to rely less on subscription growth, then it needs to retain pricing power to drive margins. Earlier this year, Netflix implemented its third price increase in less than three years, which is a bold strategy given inflationary pressures on consumers. But so far, its results indicate a mostly resilient subscriber base.

Still, investors may be concerned that Netflix's future growth will be far slower because its pricing tiers are already relatively high, and customers face no shortage of lower-cost streaming alternatives, as well as ad-based free options from YouTube and on mobile platforms like Meta Platforms' Instagram and TikTok.

Analyst average estimates have Netflix generating $3.77 in 2027 earnings per share, which is just 5.3% growth from the projected $3.58 in 2026 earnings per share. Because Netflix's stock price has been falling while its earnings have been rising, Netflix now trades at just 16.4 times 2026 projected earnings, while the forward price-to-earnings ratio of the S&P 500 is 18.7.

Netflix just spent a record $4.8 billion on stock buybacks

Netflix's transition from a high-flying growth stock to a high-margin cash-generating value stock provides the ingredients necessary for a sustainable dividend program. As a company matures, it tends to return excess cash to shareholders through share buybacks before implementing a formal quarterly dividend policy. Although buyback and dividend distributions are not equally flexible. Investors tend to expect a predictable or regularly increased dividend because it's a payment that directly hits their brokerage accounts. Buybacks, in contrast, are better suited for market fluctuations and the business's underlying performance.

The best signal that a Netflix dividend could be on the horizon is the size of its buybacks. In the third quarter of 2026, Netflix bought back 63.9 million shares for $4.8 billion, which was its largest quarterly stock buyback ever. And it still has $22.3 billion of authorized spending left for additional buybacks. For context, Netflix exited its latest quarter with almost 4.2 billion shares -- having reduced its share count by 1.6% quarter-over-quarter and 3.3% year-over-year. That's a rapid repurchase rate, which is encouraging for investors who view the stock as undervalued.

Netflix's path to market-beating returns

Given its impeccable fundamentals, excellent balance sheet, recurring revenue stream, and high free cash flow -- I could see Netflix implementing a dividend in the coming years as a mechanism to directly pass along profits to shareholders rather than relying solely on buybacks. That recipe could turn the streaming service company into an excellent dividend growth stock, with high-single-digit percentage revenue and earnings growth that supports year-after-year dividend raises.

While no one knows what the S&P 500 will do at any given moment, it has historically returned about 10% per year, including dividends, over the long term. Since Netflix's valuation is so cheap, a combination of solid earnings growth and valuation expansion could allow it to outpace the S&P 500's return during the next decade.

Daniel Foelber has positions in Netflix. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, and Netflix. The Motley Fool has a disclosure policy.