Morgan Stanley analyst Keith Weiss reiterated an Overweight rating and a $354 per share price target on Microsoft (MSFT) shares following yesterday’s dividend hike by 6 cents or 10%.
The dividend yield for Microsoft now stands at 1.1%, up from 1%.
“This dividend raise is consistent with the percentage increase in the past several years, hovering around the high-single digit/low double digit range,” Weiss said in a client note.
Weiss also expects strong buybacks to continue. The analyst expects the tech giant to repurchase close to $9 billion of its stock per quarter this fiscal year.
“We think management views dividends as a permanent commitment, explaining the increases lagging its operating income growth, leaving room for continued share repurchases, with ~$105 billion in cash and short-term investments on the balance sheet as of June 30, 2022 and our expectation of ~$70 billion in FCF generation in FY23,” Weiss added.
All-in-all, Weiss remains positive on Microsoft and its commitment to strong capital returns to shareholders.
“The dividend represents a consistent source of income and one component of the durable high-teens total return profile we forecast for Microsoft. We forecast mid-teens revenue growth, outpacing cost of goods sold, with gross profit growth also outpacing Opex growth. This yields an 18% EPS CAGR through FY25, driving the high-teens total return profile at Microsoft,” Weiss concluded.
By Senad Karaahmetovic