Microsoft (MSFT) has risen over 565% in the last 11 years and that is why they can boast of surpassing a market cap over $1 trillion every day since June 7.
They are the best tech stock in America that doesn’t have potential anti-trust risk and continue to parade us with their brilliance.
That is the crucial takeaway from their recent announcement that they will initiate a new share buyback program and dividend increase.
This vindicates my call last year that it was the only guarantee in the tech sector to finish higher this year.
To say the stock has generated outperformance is an understatement with the broader market feeling the heat but Microsoft shares mushrooming almost 40% YTD.
The other FANGs of Amazon and Apple have also outperformed the wider market up over 40% themselves.
Even though there has been no trade deal, Apple has benefited from the softening of rhetoric between the two nations.
Striking a deal seems far away but the rhetoric helps massage Apple shares higher.
Microsoft is poised to trudge higher as the hawkish rate cut by the Fed has led equities to price in a global slowdown, current earnings recession, more tech regulation, and uncertainty of more rate cuts.
The net effect is a conspicuously low bar to jump over for Microsoft and the dividend hike and fresh buyback program signal they need no freebies and neither does Microsoft’s shares.
The company has now hiked its quarterly dividend by 10.9% to $0.51 per share from $0.46. Microsoft raised its dividend by 9.5% last September, and by 7.7% in 2017.
The company’s annual dividend of $2.04 per share means a dividend payout ratio of 48%.
Oracle is another legacy company that often rewards shareholders through dividends and share buybacks too.
In its recently reported fiscal 2020 first quarter, Oracle increased its share repurchase authorization by $15 billion.
At the end of the day, strong free cash flow and revenue growth have been the lynchpin to Microsoft’s growth.
They manage to do this with growth divisions like the Azure cloud complementing a robust legacy business.
Microsoft bought back $19.5 billion, $10.7 billion, and $11.8 billion in stock in fiscal 2019, fiscal 2018, and fiscal 2017, respectively.
Microsoft’s double-digit earnings and sales growth grew its operating cash flow to $16.1 billion in fiscal 2019’s fourth quarter and returned $7.7 billion to shareholders through share repurchases and dividends in the quarter.
Consensus expects the company to grow earnings by 10.3% YoY in fiscal 2020 and around 13.5% YoY in fiscal 2021 and the buyback will help boost EPS metrics.
At some point, the law of large numbers will catch up with Microsoft because it’s not easy to grow fast at its size.
Expect shares to motor higher and any and every buyback should be bought while enjoying the higher dividend.
