Microsoft stock will rebound quickly since its free cash flow covers both its dividends and buybacks
Microsoft (NASDAQ:MSFT) stock is the ultimate anti-recession
stock. The company produces so much cash flow and has so much cash that there
is no concern about the dividend.
In fact, there is almost no concern that Microsoft will not
continue its share buybacks, on top of paying the regular dividend. Let’s look
at the simple numbers.
In the quarter ending Dec. 31, 2019, Microsoft produced
$10.68 billion in cash flow from operations. After deducting $3.545 billion in
capex spending, free cash flow (FCF) was $7.135 billion.
This is more than enough to pay the quarterly 51 cents per
share dividend that costs $3.886 billion each quarter. This is 52.8% of the FCF
it generates.
In other words, going forward, even if Microsoft generates
20% or 30% less FCF, there would be no concern that the dividend would not be
paid. For example, with a 30% cut in FCF to $5 billion, there would still be
almost $1.2 billion in excess free cash flow after the dividend is paid.
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