Dividends and buybacks make Microsoft’s total returns attractive, top analysts – Microsoft (NASDAQ: MSFT)
Microsoft Corporation MSFT Its quarterly dividend increased 10% to $0.68 per share. Morgan Stanley Analyst Keith Weiss holds an Overweight rating and a $354 price target on Microsoft.
Weiss said the dividend increase highlights the “gross-return profile of tough teens” when taken into account along with the EPS growth of Microsoft’s high percentage of teens. The dividend increase corresponds to the percentage increase in the past several years that has been hovering around the single digit high/low double digit range.
Weiss considered the dividend yield just one component of the return on capital. Repurchases are expected to continue.
Weiss said management views the dividend as a perpetual commitment, explaining that delayed increases in operating income growth are giving way to ongoing stock buybacks.
Microsoft had approximately $105 billion in cash and short-term investments on its balance sheet as of June 30, 2022, and projected it to reach approximately $70 billion in FCF production in fiscal year 23.
Microsoft repurchased approximately $8 billion of stock on average each quarter throughout fiscal year 22. Microsoft is expected to repurchase approximately $9 billion each quarter this fiscal year. Microsoft has reduced the weighted average of its diluted shares outstanding every fiscal year since fiscal 2005.
More broadly, dividends represent a stable source of income and one component of the total revenue for teens projected for Microsoft.
Weiss forecast revenue growth in its mid-teens, outpacing cost of goods sold, with gross profit growth also outpacing operating expense growth. This results in a compound annual growth rate of 18% over fiscal year 25, driving Microsoft’s total revenue to teens.
price movement: MSFT shares traded 0.50% higher at $243.66 at the latest check on Wednesday.