Sizing Up Microsoft's Payout
Big tech companies sit on mountains of cash, and investors continue to clamor for a bigger chunk of it. The world's No. 1 software manufacturer, Microsoft had $86 billion in cash at last count. Founded in 1975, the company declared its first-ever dividend in January 2003 at the rate of eight cents a share and has disbursed a richer payout every year since.
This year will be no exception, but last Tuesday's 11% enhancement compared with an average of 21% in the past few years (Barrons.com, "Microsoft: Disappointment With Dividend Raise; Do Board Changes Presage More Debt?," Sept. 17). The new quarterly will be 31 cents a share (ticker: MSFT) versus 28 cents, which computes to an additional $989 million yearly for investors and an annual payout of $10.2 billion overall at the new rate. At this time last year, Microsoft announced a new, $40 million stock buyback.
A component of the Dow Jones industrials, Nasdaq-traded Microsoft shares, which are up 26% this year, set a new 52-week high of $47.19 on Friday. With the new dividend, the stock yields 2.64%. Among large-cap tech stocks, Cisco Systems (CSCO) sports the fattest yield, 3%. Intel (INTC) is close on Microsoft's heels, with a 2.57% yield. Apple 's (AAPL) 1.9% puts it in fourth place.
ON THURSDAY, one of the world's largest manufacturers of semiconductors, Texas Instruments (TXN), said it plans to hike its quarterly common dividend by 13% in October, to 34 cents a share from 30 cents, for a 2.8% yield. Investors would reap an additional $171 million annually. The action reflects the 84-year-old company's improved margins and earnings growth in recent quarters. Dividends have been paid without interruption since 1962 and have been sweetened for 11 years in a row. Stock repurchases have reduced the company's share count by 38% since the start of 2005. Texas Instruments trades on Nasdaq close to its 52-week high of $49.77.
SHOULD INVESTORS FOCUS more on dividend yield or dividend growth when searching for opportunities? BMO Capital Markets chief investment strategist Brian Belski and senior investment strategist Nicholas Roccanova in a Sept. 12 research report say dividend growth matters most: "We have found that dividend-growth strategies perform much better than yield strategies when interest rates are rising." In addition, the pair believes that "valuation and yield differentials also make a compelling case for dividend growth….Furthermore, dividend-growth strategies tend to be more cyclically exposed, which is an added benefit should economic conditions continue to improve as we expect in the coming months."
The report lists 21 stocks that BMO analysts currently rate Outperform and that fall into the top 20% of the Standard & Poor's 500 by highest one-year growth in dividends per share. Apple is on the list, as are Abbott Labs (ABT), Altera (ALTR), Archer-Daniels-Midland (ADM), Cabot Oil (COG), Cummins (CMI), Danaher (DHR), EOG Resources (EOG), General Mills (GIS), Harley-Davidson (HOG), and Interpublic (IPG).
The other half of BMO's picks include Macy's (M), National Oilwell Varco (NOV), Omnicom (OMC), Regions Financial (RF), Schlumberger (SLB), SunTrust Banks (STI), Tyson Foods (TSN), Union Pacific (UNP), UnitedHealth (UNH), and Western Digital (WDC).
NOTEWORTHY: Citing "the continued strength and sustainability of our cash flow," Dow Jones industrials component McDonald's (MCD), the world's biggest fast-food restaurant chain, declared a 5% payout enrichment last Thursday. The new quarterly will be 85 cents a common share, versus 81 cents, for added annual dividends of $157 million. Yield: 3.6%. McDonald's has raised its payout at least once a year since paying its first one in 1976. The stock was recently quoted at $94 and change….One of the largest U.S. supermarket chains, Kroger (KR), lifted its quarterly common payout on Thursday by 12%, or $39 million yearly, to 18.5 cents a share from 16.5 cents. It was the 131-year-old Cincinnati company's eighth annual enrichment in a row. Yield: 1.4%. Kroger, which keeps posting strong sales and earnings growth, has returned more than $10 billion to investors via dividends and stock buybacks since reinstating payouts in 2006 at the rate of 6.5 cents a share. Kroger set a 52-week high of $52.77 on Friday.
E-mail: shirley.lazo@barrons.com
Stuart Don Levy
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