A Window on Microsoft


One of the Dogs of Dow this year that caught my eye is the software giant, Microsoft (MSFT). Microsoft, has its hand in everything: mobile, search advertising, video games, operating systems, office products. I’m personally not a big fan of their individual products, but that’s mostly because I was raised in an Apple household. However, Microsoft has Apple beat in dividend history. It is soon to become a Dividend Achiever.

Microsoft has been raising its dividend since 2007, and has increased its payout by an average of over 14% each year, and with a payout ratio of 36%, it shouldn’t have any trouble continuing the trend.

The entry dividend yield is pretty attractive at 3.11%, and the P/E ratio is only 13.32. So it meets all of my usual criteria for valuation. From what I can gather, it’s EPS has also grown an average of 6% each year for the past 5 years.

If you invested $1000 in this stock 10 years ago and reinvested all dividends, you would now have about 68.60 shares worth $2485.03 paying out $66.54 dividends each year.

Now, despite this writer’s opinion of Microsoft’s products, the company does have a significant share in every industry it competes in. Google is obviously the #1 search advertiser at 65%, but Microsoft’s bing takes up 30 of the remaining 35%. The xbox one had a very successful launch as they shipped 3.9 million systems last year. As more games are released, that number is surely going to skyrocket. Windows phones are not nearly as widespread as the iPhone or Android, but their share is steadily growing as well.

I would argue that Microsoft’s strength is not in the individual products, but in the company’s willingness to take chances and expand. With a brand that has been around long enough to have customers’ loyalty and trust, Microsoft will always have buyers.

You may remember from my post about Target that I was waiting for the price to drop to the mid-50’s. It’s looking like I was right on that, so my next purchase will probably be either TGT or MSFT.

What do you think? would you buy TGT or MSFT?

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