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Morgan Stanley’s Keith Weiss is guessing that Microsoft will boost the quarterly dividend to 62 cents from 56 cents.

Jeenah Moon/Getty Images

It’s

Microsoft

dividend hike season.

For 11 years in a row, Microsoft (ticker: MSFT) has announced a substantial dividend hike in mid-September—always between the 15th and 21st of the month. The increase has never been less than 7.6%, and it has been hovering around 10% for the past three years.

Morgan Stanley analyst Keith Weiss wrote in a research note Tuesday that he sees another 10%-plus increase just ahead, a move that would push the yield on the software giant’s shares to about 0.8%. Combine that with high-teens earnings-per-share growth, he writes, and you have the recipe for about a 20% total return on the stock. Weiss repeats his Overweight rating on Microsoft shares, while lifting his target price to $331 from $305. 

Weiss is guessing that Microsoft will boost the quarterly dividend to 62 cents from the current 56 cents. But the analyst points out that with the company continuing to grow operating income at better than 20%, the company has the capacity for a larger hike. “More broadly, the dividend represents a consistent source of income and one component of the durable double-digit total return profile we forecast for Microsoft,” he writes.

Microsoft shares are up 0.9%, at $299.60, in recent trading. The S&P 500 is down 0.2%.

Weiss notes that Microsoft has about $130 billion in cash and equivalents on its balance sheet and continues to generate substantial amounts of cash, giving it “the strongest balance sheet in software.” He estimates the company would pay out $18 billion in dividends in fiscal 2022 if you assume a 10% dividend hike, which compares to his forecast of $66 billion in free cash flow, leaving plenty for other purposes.

“Microsoft’s portfolio is well positioned to key secular trends and should see sustained growth in the coming years,” Weiss writes. “Key growth drivers in cloud, gaming, security, LinkedIn and others should yield durable, double-digit revenue growth. Prior quarter earnings demonstrated that the company has strong growth capabilities beyond Azure, a trend that we expect to continue.”

Write to Eric J. Savitz at [email protected]

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