Microsoft (MSFT, Financial) is not only a pioneer in the technology industry, but also one of the market leaders when it comes to returning shareholders’ worth. With its impressive growth rates and extremely strong financials, the company is all set to be a goldmine for investors for 2015. Here is how it plans to add value to its stakeholders this year.
A decade for Microsoft’s dividends
Microsoft has been reporting increases in dividends for nine years continuously and 2015 will mark a decade in the company’s dividend history. This being an important milestone, Microsoft is expected to announce a considerable increase in its dividends. Currently, the company pays out $1.24 per share, with a dividend yield of 2.7%. Currently the pay-out ratio is only 43.9%, which means there is still a big window for Microsoft to utilise to pay out to its investors. Industry experts have forecasted that Microsoft will grow at a minimum rate of 6.6% every year, for the next five years at least. This means the company will be in a very comfortable position, even it raises its rate of increase from 10.7% increase of $0.28 per share in Q4 2014 to $0.31 per share in Q1 2015. This increase, while fair enough, didn’t make investors erupt with joy and didn’t have a great influence on share prices because the market and shareholders knew that Microsoft had the potential to pay out more. For the last three years leading into 2014, the dividend growth of the company was 19.2%. This figure was an impressive 17.4% while taking the values for the last five years before 2014.
The management will look to bring some relation between its annualized growth rate and dividend increase rate this year at least, as it well aware that last year’s 10.7% quarterly dividend increase rate didn’t do justice to the annualized growth rate figures of 24.3%. As of 2014, the company had around $85 billion free cash in its accounts, but had used only $9 billion to pay out dividends. Though it can be argued that a bulk of Microsoft’s free cash was held in foreign countries and that it had to pay 35% penalty charges to bring the money back to the US, it is still widely that given the strong growth rate of the company, it will do all what it can to raise investors’ value this year. One of the primary activities that it would be looking to do is to make maximum use of the AAA credit rating that it enjoys in the market. In order to avoid paying penalty charges for bringing money from abroad, Microsoft will look to raise debt (interest rates are very low for Microsoft because of its superior credit rating) and add to its already bulging cash surplus, to pay out more to its investors.
Microsoft’s repurchase program has also been quite successful. Since 2010, the company has reduced its outstanding shares by 6%. This is indeed good news for investors because Microsoft has tactically increased its earnings per share by reducing the number of shares floating in the market. Microsoft, thereby, exposes its shareholders to a bigger share of profits, which is great news for its investors. Last year, Microsoft had given back $73 billion to its shareholders. Out of these, the majority was repurchases of the company worth $40 billion. The remaining value was in the form of dividends.
Conclusion
Going by the history of dividends, investors of Microsoft can expect to be pleasantly surprised this year as well, as the company is looking at all ways and means to increase its quarterly dividends to a considerable rate. It is going to be a golden year for shareholders of Microsoft in terms of dividend increases and increase in profit shares.
