Microsoft (MSFT) is now firmly Satya Nadella's company, now that former CEO Steve Ballmer has stepped down from the board. This new cloud- and mobile-first company could reward shareholders with additional dividends and buybacks, as well as top line growth, according to one analyst.
UBS analyst Brent Thill rated Microsoft "buy" with a $50 price target. He wrote, "We believe MSFT has the balance sheet bolstered by robust FCF generation (+10%, 5-year CAGR through FY19E), and the shareholder-friendly mindset to not only increase total capital returned to normalized historical levels, but renew its focus on intensified share buybacks to drive this process."
Thill believes that Microsoft, with the strength of its balance sheet (Microsoft has approximately $83 billion in cash), could "comfortably undertake" an additional $8 billion to $11 billion worth of additional buybacks by the end of fiscal 2017. That number that may prove conservative, given Microsoft's $9 billion in domestic cash, and the company's improved operating expenses.
Over the past decade, Microsoft has spent $113 billion in buying back stock, reducing its share count by more than 2.5 billion, since it first started paying a dividend.
A dividend increase is likely forthcoming within the next few weeks. Microsoft, which has a currently yield of 2.47% (slightly higher than the 10-year U.S. Treasury), could boost its dividend at its next board meeting, usually slated for the middle of September. Microsoft's dividend has grown around 24% per year for the past ten years.
Since Nadella took over from Ballmer in Feb. 2014, shares have gained 24.3%, outpacing the 13.3% gain seen in the Nasdaq.
Microsoft recently announced the largest layoff in its history, cutting 18,000 workers from its ranks, including 13,000 by the end of this calendar year. Previously, Microsoft's biggest layoffs occurred in 2009, when it cut 6,000 employees.