See my blogs on dividends from a couple of years ago about companies moving to pay out dividends and why, based upon what I saw in Australia in the early 90"s.
Aivars Lode
North America Equity Research
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Microsoft: Updating Model for Dividend Increase and Debt Issuance
Neutral
Click here for the full Note and disclaimers.
We are updating our MSFT model reflecting the increase to the company’s dividend (now $0.16 per quarter versus $0.13 prior) announced Tuesday night and yesterday's $4.75B debt issuance.
• Dividend Details. Tuesday night, MSFT announced it had increased its quarterly dividend to $0.16 from $0.13 prior, raising the dividend yield on MSFT shares to 2.6% from 2.1% prior based on yesterday’s closing price of $24.61.
• Debt Issuance Details. MSFT’s AAA/Aaa rated $4.75B debt offering is comprised of $1B of 0.875% notes due 2013, $1.75B of 1.625% notes due 2015, $1B of 3.0% notes due 2020, and $1B of 4.5% notes due 2040. MSFT plans on using the proceeds of the issuance for general corporate purposes, which may include funding working capital, capex, share repurchases, and acquisitions.
• Model Changes. Though offset somewhat by increased interest income on the debt proceeds, we reduced our EPS estimates slightly for fiscal 2011 and 2012 reflecting an increase in interest expense and reduced interest income stemming from the larger dividend. For F11, we reduced our EPS estimate to $2.41 from $2.42 prior. For the F12, we reduced our EPS estimate to $2.64 from $2.66 prior.
• We continue to rate MSFT Neutral with a $30 Dec-10 price target based on our DCF.
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