Technology

Microsoft Delivers With Dividend Hike and Important Change to Board of Directors

Jon C. Ogg

Published: September 20, 2017 10:50 am

Last Updated: January 12, 2020 7:59 am

Microsoft Corp. (NASDAQ: MSFT) has done rather well under the leadership changes that have been made by CEO Satya Nadella. The company confirmed on Tuesday that it was increasing its quarterly dividend for shareholders. Some tweaks were made on the board of directors as well, and this change looks like an important one when considering who is leaving.

Microsoft’s new common stock quarter dividend will rise to $0.42 per share. This is up over 7% from the prior $0.39 per share payout, reflecting a three-cent or increase over the previous quarter’s dividend, and the annualized payout of $1.68 is almost in line with the $1.70 annualized payout that Thomson Reuters has projected.

What matters here is that Microsoft’s dividend yield is will be over 2.2%, based on the $75.44 closing price. That would rank Microsoft’s dividend as being in 21st place of the 30 Dow Jones Industrial Average stocks, and the median Dow dividend is 2.47%.

Investors might think that Microsoft’s dividend yield lags its peers, and while that looks accurate on the surface, its stock is up over 21% so far in 2017 and that gain has lowered its yield to new investors. If your cost basis was closer to $62 as the stock was at the start of 2016, then your new yield would actually be closer to 2.7%.

As far as how the $1.68 annualized dividend payout per share compares to earnings expectations, Thomson Reuters has a consensus estimate of $3.17 per share for the coming fiscal year ended June 2018.

Microsoft said that the higher dividend is payable on December 14, 2017, to shareholders of record on November 16, 2017. Its ex-dividend date will be November 15, 2017.

As for the changes to the Microsoft board, Hugh Johnston will join the board and the audit committee. Johnston, who is 56 years old, is currently the vice chairman and chief financial officer of PepsiCo — and he has been its CFO since 2010.

What matters here is that G. Mason Morfit is not seeking reelection to the Microsoft board. He is the president and chief investment officer of ValueAct Capital. Does this mean that the activist view would declare “Mission Accomplished!” when it comes to Microsoft?

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Dividend hikes are big deals, particularly among the top Dow stocks and top dividend payers. The actual dividend hike announcements have started to generate limited buzz as shareholders in so many companies have become used to such routine announcements.

Microsoft shares were indicated down fractionally at $75.18 Wednesday morning, in a 52-week trading range of $56.32 to $75.97.

Microsoft’s consensus analyst target price is up at $80.70 in September, but investors should at least consider that it had a consensus target price of only $65.36 at the start of 2017.