Over the past few days, the Microsoft (NASDAQ:MSFT) share price has been ticking higher. The S&P 500 giant’s benefitted from several pieces of good news, which I think sets up the company for a strong outlook through to the end of the year and beyond. Here’s what’s going on.
Buyback news
On Monday (16 September), the firm announced a new share buyback programme of up to $60bn. This is equal to the largest it’s ever done. There’s no official end date by which it has to complete the repurchase of stock, but it was certainly an unexpected announcement.
Usually, businesses buyback stock when the price is low, or when the management team feels like it’s good value. The share price is up 31% over the past year. But at $431 it’s still some way off the $466 level we saw back in the summer.
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To me, this indicates the firm believes the stock isn’t overvalued, hence why they’re happy to repurchase some of it using free cash. After all, if they were concerned about the stock being in a bubble then it would make sense to wait for it to pop and then repurchase at a lower price.
Some will argue that the share repurchasing shows management doesn’t have any better use for the money. It’s true that this cash could be used to invest in new projects within the company to help further growth. Yet Microsoft’s a cash cow. In the latest quarter through to the end of June, it recorded net income of $22bn alone! So it has plenty of funds to invest in new ideas alongside this buyback scheme.
New features
My attention was also drawn to the news that Microsoft is shortly releasing new artificial intelligence (AI) features for use inside Office apps. This includes Excel, Word and Outlook apps, making it easier to use and offering assisted help to make tasks more efficient.
This will really start to differentiate the products away from competitors. I think over the next year this could be an avenue of revenue growth for the company. In turn, this should help to positively impact the share price.
Dividend increases
A final announcement was that the dividend payment’s going to be raised by 10%, from $0.75 per share to $0.83. The current dividend yield‘s 0.75%, so certainly nothing to write home about. However, the fact that this growth stock’s now pivoting to paying out income and increasing the payment per share is positive for the future for dividend investors.
Despite all this good news, I still need to be aware of potential risks. Microsoft has tough competition in the cloud space from Amazon and Alphabet. This could eat away market share if it focuses too much on other ventures.
On balance, I think the latest news is very positive for the stock going forward. I’m seriously thinking about adding it to my portfolio shortly.
