Microsoft – Will It Eventually Become A Dividend Aristocrat?
|May 2, 2016||Posted by Oddmund Grøtte under Stock Analysis|
Share price now: 50 USD
A dividend aristocrat is a stock that has increased the dividend for at least 25 consecutive years and is also a part of the S&P 500. Microsoft is not, but it has paid increased dividend for 14 consecutive years. Right now Microsoft seems to be on the right path to this exclusive club.
Microsoft has fallen back from 56 to 50 dollars after the recent quarterly earnings. I grabbed the opportunity and issued puts with strike 47 in July. Here are the cold numbers for Microsoft based on the latest annual result:
- Average ROIC last 10 and 5 year are 26 and 19%, a very high number
- 32% of turnover ends up as free cashflow – a truly cash machine
- Just 9% of operating cashflow is CAPEX – very little capital-intensive business
- Current dividend is 36 cents a quarter – 2.9% yield at today’s price
- Payout ratio is still a moderate 40%
- Liabilities to assets a moderate 50%
- 96 bn in cash, and excess cash of close to 6 dollars per share
- However, free cashflow seems to be a bit under pressure compared to turnover
Compared to rest of the market MSFT is priced reasonably low. At todays prices PE is about 15. Using enterprise value it comes in at 12. Certainly not a scary number.
I am short puts with strike 47 expiring in July 2016. I’m considering buying MSFT between 45 to 50.