Alphabet has two listed share classes that trade on the Nasdaq under the ticker symbols “GOOGL” and “GOOG.” What are the differences between Alphabet’s GOOGL and GOOG stocks? Which should you buy?
Differences between Alphabet’s GOOGL and GOOG stocks
Alphabet has two types of shares that investors can buy. The GOOGL ticker symbol is associated with Alphabet’s class A shares, while the GOOG ticker symbol is associated with class C shares. The only difference between shares of GOOGL and GOOG is voting rights. GOOGL has one voting right for every share, while GOOG shares don’t have any voting rights. According to Alphabet’s annual report for 2019, there were 299.9 million GOOGL and 341.0 million GOOG shares outstanding.
GOOGL stockholders can take part in the decision-making process at Alphabet’s shareholder meetings like executive compensation packages or new product releases, while GOOG stockholders can’t participate. If Alphabet ever distributes a dividend, GOOGL and GOOG would both pay out an equal amount.
Usually, GOOGL's stock price is trading at a premium to GOOG stock because GOOGL shareholders have voting rights. However, the price difference is often less than 1 percent of the stock price. GOOG stock has gained 1,152 percent in the last five years, while GOOGL stock has gained 1,124 percent.
Alphabet’s class B shares are owned by the founders
Alphabet also has class B shares, of which there are about 46.4 million shares outstanding. These are special shares that aren’t traded publicly. More than 90 percent of Alphabet’s class B shares are held by founders Sergey Brin and Larry Page and former CEO Eric Schmidt. Alphabet’s class B shares have 10 voting rights for every share, which means that they have 10x the voting power of class A shares.
In April 2014, Alphabet and Google’s founders created different classes of shares to preserve control over the company even if they held less than 50 percent of the company’s shares. With 46.4 million Alphabet class B shares that give 464 million votes, the founders own about 61 percent of the company’s voting power.
Which Alphabet stock should you buy?
If you are only considering the stock price appreciation or a potential dividend payout, it doesn’t matter which stock you purchase. Both GOOGL and GOOG stocks will generate similar returns over a longer period of time. If you want to have voting rights at Alphabet’s shareholder meetings, then go with GOOGL stock.
GOOG and GOOGL don't pay dividends
GOOG and GOOGL don't pay dividends. Alphabet probably won't initiate a dividend payment because it's still a growth stock. In the third quarter of 2020, Alphabet’s sales rose by 14 percent YoY, while its net income increased by 59 percent YoY. Growth stocks don’t usually pay dividends. If Alphabet initiated dividend payments, it might suggest that its growth is plateauing.