Most investors like purchasing blue-chip stocks primarily because of their steadily rising yields and growth potential, and Microsoft Corporation certainly falls within this category. Over recent years, Microsoft’s stocks have offered both a rapidly improving dividend and an explosive upside. But how does the company’s stock stand up against other fortune 500 companies? Investors surely do have a wide array of options in the tech category as well: Apple Inc is undoubtedly among the most popular. Investors, however, have also flocked into International Business Machines, Qualcomm Inc, and Intel Corporation. A question, consequently, comes up: Does Microsoft stock provide the most favorable prospects for an investor today?
Microsoft Inc licenses and develops enterprise and consumer software. It is mostly known for its Office Productivity suite and Windows Operating Software. Through different acquisition deals, Microsoft now owns Xamarin, GitHub, and LinkedIn. The company has been divided into three departments:
- Business and Productivity Process – This segment focuses on consumer and commercial office products such as Office subscriptions and licenses, SharePoint, Exchange, Skype, One Drive, and Outlook.
- Intelligent Cloud – This is primarily where Microsoft seeks to invest for its future needs. The main emphasis lies on server services and products to power their modern business. The products include SQL Server, Windows Server, System Center, Visual Studio, and Microsoft Azure.
- Personal Computing – Microsoft always works hard to make the common workplace more productive through innovations such as Xbox, Windows Client, Display Advertising, Bing, tablets, Surface laptops, and desktops.
Strengths – Microsoft prides in its pristine balance sheet and its ability to make purchases while in search of growth and profitability. The company’s businesses are considered to be cash cows while the Azure platform is rapidly evolving into a good business undertaking.
Weaknesses – Microsoft faces tough competition in an environment where technology is going through rapid changes. The company faces competition from other giants like Google, Apple, Amazon, IBM, Hewlett-Packard, SAP, Cisco, and Oracle.
Opportunities – The success witnessed under Nadella’s management has shown that Microsoft has the chance to do well in the current technology environment. Successful flagship products, a pristine balance sheet, cutting edge platforms, and insightful management have given Microsoft a solid opportunity to provider shareholders enticing growth and earnings.
Threats – Amazon prides in a considerable lead over Microsoft in the public cloud realm. There is no room for error given the tough competition the company deals with. This is an area where Microsoft must do well to justify its high stock valuation.
Current Yield – Considering current yield, Microsoft does not lead the pack. In fact, due to the positive run of Microsoft’s stocks recently, its yield has fallen considerably to just above two percent. The breakdown:
- APPL: 1.6 percent
- Microsoft: 2.2 percent
- IBM: 4.3 percent
- QCOM: 4.4 percent
Of course, there so much more to stock investing than just looking at the higher current yield. It is not a secret that companies such as IBM have struggled to find good business momentum in recent times; the company has actually suffered about 21 consecutive quarters of decline in revenue. Intel, on the other hand, is quite busy fighting competition from Advanced Micro Devices while Qualcomm is stuck in courtroom dramas with Apple.
By contrast, Microsoft can justify its low current yield with stronger current prospects. Its Office and Windows businesses remain to be strong cash cows with very little sign of stronger competition on the horizon. Additionally, the Azure platform continues to show impressive gains against the chief rival: Amazon Inc. A stock investor in Microsoft enjoys visibility into the future of the organization’s earnings potential.
Can The Company’s Dividend Grow Quickly Enough?
Over the past decade, Microsoft Inc has grown its dividend by an annual rate of about 15.7 percent: this is tremendous. An investor who purchased Microsoft Stock a decade ago is looking at a nine percent dividend yield currently.
How does this figure stack up against its peers? Intel has been increasing its dividend at single-digit rates in recent years. IBM has tried to match Microsoft’s growth, but at an expensive cost of high payout ratio that implies its rapid growth will not continue well into the future. Moreover, Qualcomm has recently poured cash out to its investors, but its earnings do not support sizable hikes at this point.
Apple does not have historical records of examining its dividend growth rates. The company has juiced its payout by about 66 percent since 2012. In the near future, it is quite likely that Apple will grow its dividend faster than Microsoft, at least over the short run. Even so, Microsoft enjoys a sizable fiscal reserve, which will benefit from changes in taxation. Going forward, Microsoft seems likely to please its investors.
Does Microsoft Pay Dividends and how Often?
Yes, Microsoft pays healthy dividends, and it has become a favorite of numerous income investors. The last 15 years have indicated how the company keeps building trust and adding value to its shareholder’s investment. The company, moreover, pays its dividends on a quarterly format usually over March, June, and September.
Is Microsoft a Good Investment?
Microsoft bridges the gap between being a great growth stock given its stock price increases and a good income investment for dividends. Basically, Microsoft has increased more than 150 percent in the past five years averaging about 30 percent annually. The tech space is rapidly evolving, and Microsoft is battling hard for a sizable market share with other deep-pocketed giants. However, the company’s dividend is safe and has viable growth prospects over the long term thanks to its very healthy balance sheet, a consistent generation of cash flows, and the company’s transition to a more cloud-centric and revenue-based business model. All these factors show that Microsoft is a viable and reasonable long-term holding for a diversified dividend portfolio.