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Microsoft Boosts Dividend


Parsad
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Not Sanjeev, but I do own MSFT.  $0.20 is higher than I expected, but I'm not overly concerned about it either way.  I think they're content to slowly grow the dividend over time and continue to buy back shares over time.  Dividends have been about 20% of operating cash flow over recent years, and I don't think they have a desire to change that significantly.

 

Grow the business

Shrink the share count

Bump the dividend

Rinse and repeat

 

Given the really positive response to Win8 in the last couple weeks I think MSFT is positioned to do good things over the next few years.  If they can execute in the tablet space there is a real opportunity for them to start to compete with the ipad, more so than the mediocre android tablets that are out there now.  And, if Nokia can execute on the phone hardware, there's another good opportunity there.  I don't think it's far fetched for MSFT to have $3.50 - $4.00 per share in eps and a $1.00 dividend within the next 2 years.  And yet, it still sports a single digit trailing P/E multiple.

 

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I don't think it's far fetched for MSFT to have $3.50 - $4.00 per share in eps and a $1.00 dividend within the next 2 years.  And yet, it still sports a single digit trailing P/E multiple.

 

I think $3.50 EPS is a layup.  Complete the current buyback (takes out another 5%-6% of shares at current prices), grow EPS by another 10% annually, and you're there.

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I don't think it's far fetched for MSFT to have $3.50 - $4.00 per share in eps and a $1.00 dividend within the next 2 years.  And yet, it still sports a single digit trailing P/E multiple.

 

I think $3.50 EPS is a layup.  Complete the current buyback (takes out another 5%-6% of shares at current prices), grow EPS by another 10% annually, and you're there.

 

Well, I like to be a little conservative.  :)

 

This year's net benefited from a lower effective tax rate, which I assume won't carry forward.  So, we may see the net margin come down a bit (last year's was 33% with is pretty high historically).  My base case scenario includes slowing revenue growth and a bit of margin compression.  So, I think the grow eps by 10% annually part might be a little optimistic, certainly possible, but optimistic. 

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Sanjeev,

 

Do you think they took it high enough or should they be paying out more?

 

I would like to see them increase it by 25% a year for the next few years.  I would much rather see a large, consistent quarterly dividend, rather than a special dividend.  I would also like to see share buyback like they've been doing over the last few years, as long as they are buying them back cheap. 

 

Other than that, some of the things they are trying are very appealing to me.  I think Windows 8 may be a bit of a game changer, and the recent slew of patent acquisitions and deals with cellphone makers looks to be promising.  Growth in their gaming business, along with the acquisition of Skype create some interesting synergies in what Microsoft's service offerings will be going forward. 

 

They won't dominate Google or Apple, but it seems as though Ballmer is giving Microsoft some longevity and the ability to steal market share from the non-Googles and Apples.  Cheers! 

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