Meta stock hit a high above $485 per share on Friday. That's a jump of more than 23% from where it closed on Thursday before the company reported earnings and announced its first-ever dividend, Axios' Felix Salmon writes.

Why it matters: Dividends are a form of financial engineering. They don't change anything fundamental about a company's size or profitability — and yet they can have an enormous effect on its valuation.

The big picture: Naively, when you own a share of a company, the idea is that you share in its profits. If there are a million shares and the company makes a billion dollars, then you are owed $1,000.

• On some level, the whole point of owning a stock is to be able to share in the company's profits. If you can't do that — if you can't take those profits to the bank — then stock ownership itself becomes a kind of postmodern and abstracted form of speculative finance.

Between the lines: In practice, companies don't dividend all of their profits to shareholders. They like to retain some for working capital, just for starters.

• A dividend is also a signaling mechanism — it's a way for a company to indicate to investors that it will be able to maintain its profits at or above the dividend level in perpetuity.
• Because of the convention that companies only cut their dividend when times are unexpectedly tough, investors value stocks on the basis of their dividend yield — essentially treating the dividend as a predicable, almost bond-like, coupon payment.

Be smart: For these reasons, profits that become dividends are treated not as the kind of risky cashflows you might expect from the company portrayed in "The Social Network" but rather something much more mature, and much more likely to continue to survive for many decades into the future.

• A company capable of paying out such cash flows is therefore considered less risky — and lower risk, in finance, means a higher upfront price.

The other side: To truly understand why investors love dividends so much, despite the fact that they have to pay a 20% tax on them, it's worth looking at the two big counterexamples — the two companies that have never paid a dividend despite being hugely and consistently profitable.

• Berkshire Hathaway isn't a company so much as it's an investment firm. Its shareholders don't want Warren Buffett to share his profits with them: Rather, they want him to invest those profits on their behalf since he's a better investor than they are.
• Amazon, similarly, has shown an ability to get well above-market returns by investing in AWS and other products like Prime. Were it to declare a dividend, that would be an admission that it has run out of profitable ideas to invest in.

The bottom line: Meta's big idea, when it came to finding something to invest its enormous profits into, was a vague and unconvincing vision of the metaverse. It's hardly surprising that investors would rather just take the cash.

Here's another sign that Meta's entered its mature period: The company's profits soared in 2023 from the previous year — not because of some striking innovation but because it cut costs, Emily writes.

How it works: The company slashed its headcount by 22%, as part of CEO Mark Zuckerberg's year of efficiency.

• It also closed offices to save money. (All while still losing billions on its big metaverse bet.)

• So while revenue went up 25%, net income — i.e. profits — spiked 200%(!).

The bottom line: Widening margins by slashing costs was Meta's goal all along, as Business Insider's Peter Kafka wrote.

• "They want to show Wall Street they can still increase profits — even if their go-go growth days are behind them, and even if they're still plowing money into new stuff," he wrote.

🇨🇳 Treasury Secretary Janet Yellen wants to visit China this year, a sign that U.S.-China ties are stabilizing. (Bloomberg)

⬇️ Moody's cuts New York Community Bancorp rating to junk. (Bloomberg)

🚘 Ford announces a smaller EV to rival Tesla's coming Model 2. (MarketWatch)

Toyota expects to notch an annual profit of more than $30 billion when its fiscal year closes in March, it said yesterday.

Why it matters: That would be a record profit for the Japanese car giant, suggesting its decision to emphasize gas-hybrid vehicles, rather than fully electric models, is paying off, Matt writes.

Context: Consumers seem reluctant to go fully electric, a reflection of anxieties about range, access to charging stations and affordability.

• Toyota has approached the all-electric vehicle market cautiously while maintaining its traditional strength in hybrid vehicles.

The bottom line: At the moment, the stock market thinks Toyota has the product mix right. The company's shares are up nearly 50% over the last 12 months, while electric vehicle giant Tesla has struggled (perhaps in part due to a new chapter in the never-ending saga of Musk).

A coalition of large banking and business trade groups filed suit this week against their regulators over updates to a housing law meant to promote lending to low-income Americans, Emily writes.

Why it matters: Banks have gotten more aggressive in challenging Biden-era regulations and regulators.

The big picture: Typically banking trade groups have tried to avoid litigation against their key regulators — in this case, the FDIC, OCC and Federal Reserve are defendants.

• But over the past year and a half, more than 30 companies and trade groups representing banks, funds, and other firms have filed at least 15 suits against financial regulators over rules, policies and other issues, according to reporting from Reuters.

Zoom in: Filed this week in the Northern District of Texas, the case covers updates to the Community Reinvestment Act, a 1977 law that encourages banks to lend to low- and moderate-income borrowers in their communities.

• The latest update aims to bring the policy into the internet era when people use online banks that don't necessarily have a physical presence where they live. (Go deeper.)
• The plaintiffs include the American Bankers Association, the U.S. Chamber of Commerce, the Independent Community Bankers of America and their Texas affiliates.
• They argue the changes are unlawful, go beyond the regulators' authority, are convoluted, and could discourage lending.

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