Morgan Stanley sees another 10% upside in Microsoft stock

Microsoft Corp (NASDAQ: MSFT) has had a fantastic run in the stock market this year, with shares up about 40% year-to-date. Shareholders, however, might be in for more in the upcoming months, says Morgan Stanley’s Keith Wiess.

Wiess reiterates Microsoft at ‘overweight’

In a note on Tuesday, Wiess reiterated his ‘overweight’ rating on MSFT and raised the price target to $331 that represents another 10% upside from here. Previously, the analyst had a PT of $305 on the stock.

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Additionally, Wiess expects Microsoft to raise its dividend by more than 10% this year, from 56 cents per share to 62 cents per share. The estimate he dubbed “conservative” is in line with the dividend hike in the past three years.

Microsoft usually announces an increase in its dividend by mid-September. The news comes weeks after the American multinational pledged $20 billion to cybersecurity.

Reasons that support an over 10% increase in dividend

Wiess also sees a possibility of a bigger increase in dividend on another year of more than 20% growth in Microsoft’s operating income. The tech giant’s dividend yield will stand at about 0.8% (below historical levels) if it hikes its dividend by over 10% this year.

“The combination of strong and durable revenue growth and expanding margins should result in mid to high teens growth in operating income going forward, which should provide support for a dividend increase beyond 10%.”

Other reasons cited for the dividend hike forecast include the strength of the balance sheet. With $130 billion in cash and equivalents, the analyst noted, Microsoft is well-positioned to increase its per-share dividend by more than 10%.