Microsoft (NASDAQ:MSFT) announced during Wednesday’s extended trading hours that its Board of Directors have declared a quarterly dividend of $0.51 per share constituting an increase of 11 percent over the previous quarter’s dividend. The dividend will be paid on 12th December 2019 to shareholders of record on 21st November 2019. The board also authorized a $40 Billion share repurchase program. Consequently, Microsoft’s stock was up 1.3 percent during the after-market hours trading.
According to FactSet, this announced dividend translates into a dividend yield of 1.47 percent based on the stock’s closing price of $138.52. On the other hand, the S&P500 is currently yielding 1.93 percent. Moreover, some analysts have highlighted that the stock, which is currently trading at a multiple that is nearly 24 times the 2020 EPS estimate, is not very attractive from a valuation perspective. Therefore, a stock buyback program at such elevated valuations offers limited utility to investors who would have fared far better with a larger increase in cash dividend. Nonetheless, the cash dividend announced yesterday is nearly double of that announced at the time Satya Nadella replaced Steve Balmer as the CEO which, by any measure, is not an easy feat.
Over the years, Microsoft has built for itself a reputation of a ‘cash cow’. During the fiscal year that ended in June 2019 (read our previous coverage here), the company’s revenue increased by 14 percent to $125.8 Billion while its Net Income increased by 137 percent to $39.2 Billion. Analysts point to Microsoft’s Intelligent Cloud Division as its big growth driver as the tech titan continues to lock-in long-term corporate partnerships. Last year, the company’s Azure cloud business grew by an impressive 64 percent. Moreover, the company continues to reliably generate income through its other businesses. These include Windows Commercial, Windows OEM, MS Office, and the Surface products. The only business showing signs of ailment is the Gaming Division where the Xbox earnings declined by 10 percent on annual basis last year. This division’s fortunes are unlikely to turn in a significant manner until Xbox Scarlett and the xCloud game streaming service are launched.
As one of the most iconic internet-era companies, Microsoft has experienced a relatively smooth progression into a blue-chip stock with a market valuation of $1.06 Trillion. Moreover, the company is expecting between $31.7 Billion and $32.4 Billion in revenue for Q1 2020. It is therefore not a surprise that its stock has gained over 36 percent year-to-date. Nevertheless, this does not mean that the company exhibits a pristine rosy picture as it still faces stringent competition in the cloud business from its nearest nemesis, the Amazon Web Services (AWS).
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