After the close Tuesday night, Microsoft (MSFT) announced an
11% dividend increase and two new board members. The payout
was in line with consensus, although there had been growing
optimism that the 40% payout could be bumped higher for a
larger increase -- whisper figures were for 20%. Even so,
the company’s payout yield will now be 2.6%, which easily
beats out the current average S&P 500 figure of 1.9%.
We wouldn’t rule out further increases, as the company has
$8.6 billion in U.S. and onshore cash, and $86 billion in
total. We expect that free-cash-flow generation in 2015 will
be $21 billion with $8.5 billion in the U.S. and onshore.
Plus, with just $23 billion in debt on its balance sheet, we
wouldn’t be surprised at additional leverage opportunities
for further payout bumps. Microsoft did not comment on its
stock-buyback program, and it still has $35 billion left on
the current $40 billion plan, which the company had
announced last year.
On the board changes, Dave Marquardt and Dina Dublon are not
seeking reelection, and the board has added Kraft (KRFT)
Chief Financial Officer Teri List-Stoll and Visa (V) CEO
Charles Scharf. They represent a fresh set of eyes on the
company, and we view this change positively.
We are restricted in Microsoft shares currently, but we
would otherwise easily take advantage of the current 1%
pullback to build out the position. We like the cloud and
mobile-growth strategy, the focus on enterprise, the strong
balance sheet and the medium- and long-term opportunities
for further growth from the new CEO and team. We will add
when we can.
In that vein, we are finally cleared on Twitter
(TWTR:Nasdaq), and will buy 200 shares at around $50.67
after you receive this Alert. We have been very vocal that,
were we not previously restricted, we would have been adding
to this position on the recent dip in shares, especially
under $50. We’ll add here because we foresee earnings,
revenue and margin upside, as well as engagement
stabilization and a healthy balance sheet. Shares are down
22% from their high, and we like the risk-reward scenario
Jim Cramer, Stephanie Link, and TheStreet Research Team
DISCLOSURE: At the time of publication, Action Alerts PLUS
was long TWTR and MSFT.
Committed to being a world-class franchise and creating shareholder value.
We like the risk/reward and the company's buyback plans.
We made a few buys this week as the major indices cooled a bit.
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