CFRA maintains a “Strong Buy” opinion on Microsoft Corp. (MSFT). The company announced it is boosting its quarterly dividend by 10% to $0.83 per share, implying a 0.8% yield. It also approved a new share buyback plan of $60 billion, which matches the 2021 authorization, notes Angelo Zino, analyst at CFRA Research.
We note that buybacks have slowed in recent memory, with MSFT repurchasing $17.3 billion in FY 24, down from $22.2 billion in FY 23 and $32.7 billion in FY 22. We partly attribute that to greater proceeds being allocated toward M&A (Activision).
Microsoft Corp. (MSFT)
Looking ahead, we expect primary cash usage to be toward capex, as MSFT eyes growth tied to AI. But we anticipate that greater cash will be returned to investors as the company likely refrains from major M&A and free cash flow continues to grow.
Still, MSFT’s much more elevated capital intensity levels compared to the likes of Apple Inc. (AAPL) – we project about 20% for MSFT in FY 25, versus about 3% for Apple – will likely limit buybacks to less than 1% of MSFT’s market cap and not be a major contributor to future shareholder returns. We look for FCF generation of $75 billion in FY 25 and $90 billion in FY 26, up from about $74 billion in FY 24.
Recommended Action: Buy MSFT.
