Microsoft is about to return an absurd amount of money to shareholders


WWhile high-growth stocks, memes and cryptocurrencies are gaining all the attention these days, the cloud giant Microsoft (NASDAQ: MSFT) just continues to do what he always did under CEO Satya Nadella: strike money and give it back to shareholders.

While younger investors can certainly afford to take more risk, they shouldn’t overlook tech giant Redmond. Likewise, older investors looking for value stocks and dividends shouldn’t reject Microsoft either. Is the stock cheap? With a price-to-earnings ratio of 38, it might be hard to tell. Does it have a high dividend? At 0.81%, that payout can leave dividend investors underestimated.

Still, younger and older investors would do well to own Microsoft shares. The recent buyout and the increase in dividends of the company illustrate why.

Image source: Getty Images.

$ 100 billion for shareholders over the next two years

On September 14, Microsoft’s board of directors approved a new $ 60 billion buyback program and an 11% increase in its dividend to $ 0.62 per quarter. Based on about 7.51 billion shares at the end of July, this year’s dividend payout could reach around $ 18.6 billion, an increase from the $ 16.5 billion the company has paid out in dividends during its 2021 fiscal year which ended in June.

And if you like dividends, you should also like stock buybacks. When a company repurchases its own shares, it reduces the number of shares, thereby increasing earnings per share and generally the share price. By thinking like an owner, buyouts increase your business ownership without you having to lift a finger! And while there have been talks in Washington about taxing share buybacks, companies don’t pay taxes when they return money to shareholders through buybacks as of now.

Perhaps it is for these reasons that Microsoft even spent Following money on share buybacks in recent years, spending $ 27.4 billion to buy back shares in its 2021 fiscal year. The new $ 60 billion buyback program marks a whopping $ 50 billion increase % from $ 40 billion plans approved in 2016 and 2019.

Assuming share buybacks continue to rise this year, as they have in recent years, Microsoft could very easily spend that $ 60 billion in just two years. And if it increases its dividend, as it has in each of the past 16 years, the total return to shareholders over two years could reach $ 100 billion, more than the market capitalization of most companies. of the S&P 500.

A smiling young child and a smiling elderly person look at a jar full of coins.

Microsoft is a suitable investment for young and old. Image source: Getty Images.

Young and old should not neglect Microsoft

While Microsoft may seem too “defensive” to young investors, those just starting their investment journey shouldn’t overlook a dividend growth juggernaut like Microsoft. That’s because not only is Microsoft a dividend payer, but it’s also a growth stock.

While its Windows and Office software businesses have been around for decades, Microsoft also has very promising growth segments, such as its Azure Cloud computing platform, its Dynamics 365 enterprise resource planning suite, the social network LinkedIn, and its Xbox gaming platform. Many of its emerging growth segments jumped 20%, 30%, 40% or even 50% in the last quarter, with a long trail of growth ahead of them.

This growth is not to be sneezed at, and while the company’s forward return of around 0.81% may not raise eyebrows, Microsoft’s payout rate is only 27.2% of its. final benefits. This leaves plenty of room for this dividend not only to grow in line with Microsoft’s earnings over the long term, but to exceed them.

So let’s say you’re 25 and plan to retire at 65. If Microsoft’s compound dividend was the same 11% for 40 years, by the time you reach retirement, you would earn a 52% dividend yield. every year on the money you invested today.

And for retirees, Microsoft should not be fired either. It’s large, defensive, and with the 10-year US Treasury bond hovering around 1.3%, a 0.81% yield that’s almost certain to grow each year is actually appealing. This is especially true since Microsoft actually has a higher credit rating than the US government!

So while Microsoft is sort of occupying “middle ground” – perhaps too defensive for young people and not enough returns for retirees – the recent rise in dividends and buybacks actually shows that it is. ‘an ideal stock for both types of investors. Ignore Microsoft at the risk of your wallet.

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Teresa Kersten, an employee of LinkedIn, a subsidiary of Microsoft, is a member of the board of directors of The Motley Fool. Billy Duberstein owns shares of Microsoft. Its clients may own shares of the companies mentioned. The Motley Fool owns shares and recommends Microsoft. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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