Micron’s Dividend Initiation Makes Sense Based on Healthier DRAM Fundamentals

On Aug. 2, Micron announced it would be initiating a quarterly cash dividend of $0.10 per share, with the initial quarterly dividend payable on Oct. 18. We note that Micron historically returned cash to shareholders via share repurchases. The cyclicality of the memory industry often led to bouts of weak performance that could threaten the financial health of suppliers such as Micron, thus putting potential dividends at risk. However, management now believes Micron is enjoying strong and sustainable secular demand across a variety of end markets as well as slowing industry supply growth due to consolidation, slowing of Moore’s Law, and an increasing focus on maximizing ROICs. Specifically, Micron has aligned its capital expenditure plans with stable memory bit supply market share targets while tactically adjusting utilization and holding higher levels of inventory during weaker demand periods. We agree with this thesis that Micron and its memory peers are better equipped to maintain healthy investment levels during downturns as well as a quarterly dividend.