Stifel Says Use Any Microsoft Weakness As A Buying Opportunity

Microsoft Corporation MSFT announced Tuesday a change to its board composition and an increase to its dividend payment, which could pressure the stock but the bullish case remains unchanged, Stifel's Brad Reback commented in a report.

Microsoft announced it will boost its quarterly dividend by 3 cents per share to 42 cents, which represents a 7.6 percent increase, Reback said. The problem is the analyst had expected a dividend increase by a range of 10 to 15 percent.

In fact, Microsoft's dividend increase marks the second consecutive increase of less than 10 percent and only the third single-digit increase in the past decade.

Board Change No Surprise

Microsoft also confirmed that G. Mason Morfit, the CIO of activist investment firm ValueAct, will not be seeking a reelection to Microsoft's board of directors. Morfit served on Microsoft's board since 2014,but much of what ValueAct wanted to achieve since it was given representation on the board has been accomplished or actively underway.

ValueAct sold 29.6 million shares of its Microsoft stake this year, which brings its ownership stake down from a high of 75 million in 2015 to around 9 million today.

Buy On Weakness

If Microsoft's stock trades lower on Wednesday, investors are encouraged to be buyers on the dip, the analyst said. Specifically, the company's "strong" commercial cloud revenue, gross margin growth, and expense discipline will result in improvements to operating profit and free cash flow generation for at the very least the coming quarters.

Reback maintains a Buy rating on Microsoft's stock with an unchanged $80 price target.

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