Last week, most of the news on Microsoft (MSFT, Financial) suggested that a high teens percentage increase for the dividend was around the corner. Many believed that this would fall short of investors' expectations and cause the stock to sell off. Today, the company topped the estimates by announcing a 25% increase in the dividend, the largest jump since the company started paying quarterly dividends seven years ago. To clarify, the increase came off of a 23% dividend spike, meaning that the quarterly dividend is now 54% higher than it was in 2009 (when the quarterly payout was $0.13).
Despite the increase, the stock took a hit, falling nearly 4% (along with the broader market). Whitney Tilson, who has been vocal on Microsoft, had this to say in appearance on CNBC’s Fast Money: “Frankly, we’re getting a little fatigued with it. Our biggest quarrel with what the company is doing is that they took a step in the right direction, with the dividend increase but they should have taken a leap in the right direction. They should have doubled their dividend in our opinion, and they could have easily afford a 5% dividend, so I think the markets are concerned that they are generating enormous amounts of cash, they’re sitting on a huge pile of cash, and what are they going to do with it? They should be buying back stock by the bucket load (trading at less than 7.5x earnings net of cash) and paying a big dividend to boot.”
On the repatriation issue, Whitney says they should come out with their dividend policy and borrow cash: “They are one of only four AAA-rated companies left, and there is no reason they need a AAA rating to operate their business; why don’t they borrow $50 billion and announce that they are going to double their dividend and buyback 20% of their shares?”
To date, T2 Partners has sold a portion of their holding in MSFT, only because they have found (what they believe is) a better opportunity in Dell (DELL, Financial), a company that recently announced a huge buyback to take advantage of a cheap share price: “That is what a cash-rich, cash-generating company should do when their stock is trading at 5-7x earnings, is forget a dividend; it is much better for shareholders to buy back a ton of stock at that valuation.”
The fear is that management will do something “colossally dumb” like acquire Research In Motion (RIMM), or pick up another company like Skype which they “vastly overpaid for.”
Like many investors, I agree with Mr. Tilson (for the most part) and believe that Microsoft should seriously step up their buyback program; with $12.2 billion remaining on the $40 billion repurchase program announced in September 2008, it would be nice to see management max out the authorization sooner rather than later. Here is the video:
Despite the increase, the stock took a hit, falling nearly 4% (along with the broader market). Whitney Tilson, who has been vocal on Microsoft, had this to say in appearance on CNBC’s Fast Money: “Frankly, we’re getting a little fatigued with it. Our biggest quarrel with what the company is doing is that they took a step in the right direction, with the dividend increase but they should have taken a leap in the right direction. They should have doubled their dividend in our opinion, and they could have easily afford a 5% dividend, so I think the markets are concerned that they are generating enormous amounts of cash, they’re sitting on a huge pile of cash, and what are they going to do with it? They should be buying back stock by the bucket load (trading at less than 7.5x earnings net of cash) and paying a big dividend to boot.”
On the repatriation issue, Whitney says they should come out with their dividend policy and borrow cash: “They are one of only four AAA-rated companies left, and there is no reason they need a AAA rating to operate their business; why don’t they borrow $50 billion and announce that they are going to double their dividend and buyback 20% of their shares?”
To date, T2 Partners has sold a portion of their holding in MSFT, only because they have found (what they believe is) a better opportunity in Dell (DELL, Financial), a company that recently announced a huge buyback to take advantage of a cheap share price: “That is what a cash-rich, cash-generating company should do when their stock is trading at 5-7x earnings, is forget a dividend; it is much better for shareholders to buy back a ton of stock at that valuation.”
The fear is that management will do something “colossally dumb” like acquire Research In Motion (RIMM), or pick up another company like Skype which they “vastly overpaid for.”
Like many investors, I agree with Mr. Tilson (for the most part) and believe that Microsoft should seriously step up their buyback program; with $12.2 billion remaining on the $40 billion repurchase program announced in September 2008, it would be nice to see management max out the authorization sooner rather than later. Here is the video:
