(BFM Bourse) – The American giant announced that it was increasing its dividend by 10% and would buy back a total of $60 billion of its own shares. This is part of a broader movement by tech groups that are increasing shareholder returns.
Microsoft is taking care of the return to its shareholders. The Redmond group announced Monday evening that it would increase its quarterly dividend to 83 cents per share, or 10% more than the coupon distributed in the previous quarter. The dividend will be detached on November 21.
In addition, the company led by Satya Nadella has decided to launch a new share buyback program, representing a total of up to $60 billion. This share buyback program has no expiration date.
While the amount may seem high in absolute terms, it represents only about 1.9% of Microsoft’s market capitalization, which stands at around $3.2 trillion.
On Wall Street, Microsoft shares are rising slightly in response to these announcements, with a 1.8% increase in pre-opening trading on Tuesday. Microsoft could also take back the title of world’s largest market capitalization from Apple on Tuesday, since only 80 billion dollars separate the two American groups in the companiesmarketcap.com ranking, at the close of Monday evening.
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Mountains of cash
Microsoft’s decision comes as several major tech groups have recently revised their shareholder policies to return more cash to their shareholders. In February, Meta, the parent company of Facebook, Instagram and Whatsapp, announced the distribution of a dividend for the first time in its history.
Alphabet followed in April, announcing in turn a first coupon of 20 cents per share. Nvidia, for its part, announced at the end of August, in addition to its dividend, a share buyback program of 50 billion dollars.
Tech groups have historically been growth stocks, whose cash must mainly be used to finance initiatives to consolidate this growth and take the right strategic turns. Which, in the past, has led these companies to favor share buybacks rather than dividends, because share buybacks do not have an implicit recurring nature.
Moreover, these companies continue to invest massively at present. In July, Alphabet had indicated that its capital expenditures would amount to around 12 billion dollars per quarter. The CEO, Sundar Pichai, had warned at the time that the risk was, with the rise of artificial intelligence, “to underinvest rather than overinvest.”
Which had also raised eyebrows on Wall Street. Microsoft, for its part, had spent $19 billion in “capex” in its last quarter to support demand for its cloud and artificial intelligence offerings.
This does not prevent big techs from generating mountains of cash. Microsoft, for example, generated $118 billion in operating cash flow in its last financial year. Hence the decision to return this significant cash to their shareholders, and, ultimately, to fall into line with companies in older sectors.
“A point of maturity”
“These companies are following a path well-trodden by growth industries over the past two centuries, reaching a point of maturity where dividends are a natural way to return excess cash to shareholders,” asset manager Janus Henderson said in a report earlier this month.
“In doing so, they have confounded skeptics who claimed this group of companies was different. The stock market simply evolves over time, as sectors rise and fall to meet the changing needs of society,” Janus Henderson continued.
“Paying dividends will also broaden their appeal to investors for whom dividends are a core part of their investment strategy, and this could also encourage other companies to follow suit,” the asset manager concluded.
Let us recall that dividends, like share buyback programs, are theoretically neutral for shareholders, because they replace the value that the shareholder already holds in the stock of the company in question. But an increase in the dividend and share buyback programs are generally well received by the market because they demonstrate a form of confidence of the company in its prospects.
Julien Marion – ©2024 BFM Bourse
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