Tuesday, September 17, 2013

Ka-Ching! Microsoft Just Gave Me a 22% Raise

Microsoft (MSFT) today announced a 22% increase of its quarterly dividend from $0.22 to $0.28 which now gives the stock a 3.4% dividend yield. They also announced a $40 billion stock buyback program that replaces a previous buyback program that was set to expire. Both of these actions demonstrate MSFT's determination to return value to shareholders through other means than price appreciation.

This increase more than doubles an investors Yield on Cost for those who were invested in 2010 when the company was paying a quarterly dividend of $0.13. That is an impressive feat in such small amount of time.

So how has MSFT managed to do this? Well for one, they have an incredible $76.2 billion in cash on hand as well as a low debt to total capital of just 17%. MSFT has built one of the strongest financial positions of any company in the word. Its massive cash flow, low debt, and excellent Bond rating make it an incredibly safe dividend stock. Much has been made recently about the decline of the PC, but it still outsells any other OS by a wide margin. 

There are several catalysts that should help MSFT continue to grow its dominant position including an anticipated new release of Windows 8, a new Xbox gaming console, increases in mobile market share with its buyout of Nokia, and an expected technology refresh by corporations to replace outdated laptops and desktops. MSFT has proven the past decade that they are dedicated to rewarding shareholders through steady and increasing dividend payments and I have full confidence there will be another sizable increase come this time next year.

Disclosure: I am long MSFT.

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