A fat Microsoft dividend is appealing … But should the tech giant put its money elsewhere?
MSFT is seeing a modest share price rise as its substantial dividend and buyback resonate with investors.
After announcing a new dividend value and a pretty enormous stock buyback, Microsoft is sitting pretty at around $140 per share. That represents near all-time highs for the tech giant’s equity as it towers over the renowned FAANG stocks (Facebook, Amazon, Apple, Netflix, Google).
After shares increased more than 2% on Thursday, Microsoft continued to keep those gains into the beginning of this week.
That’s $20 per share, or nearly 20% over where the stock stood a year ago — or even six months ago. It’s also an increase of about $5–$6 over the month.
Notes on Microsoft’s Strategy
The Microsoft dividend increased by 11% — that’s impressive and significant for investors. The buyback is also large, to the tune of $40 billion. But with a market cap of over $1 trillion, Microsoft, as many experts point out, has the money to back these moves up.
Some ask whether it might be smarter for Microsoft to put some of this money back into products or operations…
In general, there’s some talk about large corporations funneling money out of operations into shareholder coffers or executive holdings. And it’s often done in a way that some critics characterize as sitting out the game or taking your marbles and going home.
The argument is that putting money back into operations directs that capital back toward workers or increased hiring. But putting it into dividends and buybacks takes it out of the working economy.
However, it makes sense that these monetary handouts would increase the share price and volume on the buy side.
In terms of the potential for Microsoft to actually grow business, segments of focus include gaming and smart home technology. Analysts suggest that Microsoft might take some of that cash and pursue additional acquisitions related to either of those two segments or to the nascent internet of things.
Privacy and security issues aside, members of the FAANG guild have been building just these kinds of initiatives to boost their own growth significantly.
Big and Steady Gains
Regardless of where Microsoft parks its reserves, investors are likely happy about a stock that sits at all-time highs, registering a steady march to the top. To be clear, MSFT actually hit a high of $141.34 July 26, so it’s pennies off — but who’s counting?
The more relevant price action, it could be argued, is the five-day increase from $136.90 up to current price action above that mark.
MSFT has been nothing if not buoyant over the past year, as well as the past decade. It’s a solid example of an established blue-chip firm that’s hard to slow down. Historical charts show that even the crash of 2008 did little to block the company’s equity move toward the top of the mountain.
Now, the stock continues to crest. Meanwhile, the S&P 500 has been fluctuating downward over the last couple of days.
Justin Stoltzfus writes for Lancaster Newspapers in Lancaster, PA, as well as numerous digital publications like Answerstock, Techopedia, Warrior Trading, and Breaking Modern. His finance reporting has been featured on Motley Fool, Mint.com, and other sites. Stoltzfus is a graduate of James Madison University in Harrisonburg, VA.