Analysts call on Microsoft to dole out some cash
Spending some of that $56 billion cash reserve could raise Microsoft's stock price, analysts say.
Securities analysts have long questioned Microsoft's fiscally conservative management regarding its huge $56 billion cash stockpile and the billions of dollars it generates from ongoing operations. Microsoft has said that the money will be used to settle outstanding litigation against the company and pay related fines but has not offered any specific details.
Analysts speculated that Microsoft will discuss its plan to handle its massive cash position at its fourth-quarter earnings announcement on July 22 or a meeting of financial analysts on July 29 in Redmond, Washington.
On Thursday, Bernstein Research analyst Charles Di Bona sent a report urging Microsoft to consider a stock purchase plan or a special dividend to shareholders. Di Bona also said that Microsoft could boost its annual dividend, which Microsoft started giving out last year for the first time
"We strongly favor a combination of substantial share repurchases to reduce existing cash balances coupled with a meaningful increase in the annual dividend," Di Bona said in a report.
He called on the company to increase its dividend over time and periodically buy back shares using the money from the company's ongoing positive cash flow. The cash buybacks will increase the company's share price and the boosted dividend will make Microsoft's stock attractive to investors who seek regular income, he said.
Long-time Microsoft analyst Rich Sherlund, who works for Goldman Sachs, on Monday said that a multibillion-share repurchasing program would benefit the company's share price. Sherlund calculated that a $10 billion stock repurchase program would boost earnings 10 cents a share on an annual basis.
"We believe management is motivated to improve their share price, so we have shifted our thinking over the past year in terms of how aggressive they might be in addressing the cash position," Sherlund said in the report. He noted that the company has not yet indicated its intentions.
Microsoft's stock price, which was $27 on Thursday, has trailed the Nasdaq composite index since the beginning of this year.
Microsoft could also spend its cash on acquiring other companies. Last week, the company disclosed that it held preliminary discussions with SAP over a merger of the two companies. Microsoft typically makes smaller acquisitions related to the purchase of specific technology.
Microsoft settled its legal disputes with Sun Microsystems, signing a wide-reaching agreement in which Microsoft paid $1.95 billion to Sun to settle all legal disputes. Microsoft is facing a $611 million fee from the European Commission's antitrust regulators. Microsoft earlier this month appealed the antitrust ruling, which included a request to reduce or annul the $611 million fine.