Most investors like purchasing blue-chip stocks primarily because of their steadily rising yields and growth potential, and Microsoft Corporation certainly falls in this particular category. Over recent years, Microsoft's stocks have offered both a rapidly improving dividend as well as an explosive upside. But how will the company's stock stand up against other fortune 500 companies? Investors surely will have a wide array of options in the tech category as well: Apple Inc is undoubtedly one of the most popular. Investors, however, also have flocked into International Business Machines, Qualcomm Inc, and Intel Corporation. An issue, 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's 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 concentrates on consumer and commercial office products for example Office subscriptions and licenses, SharePoint, Exchange, Skype, One Drive, and Outlook.
- Intelligent Cloud – This really is primarily where Microsoft seeks to invest for its future needs. The main emphasis lies on server products and services to power their modern business. These products include SQL Server, Windows Server, System Center, Visual Studio, and Microsoft Azure.
- Personal Computing – Microsoft always works hard to make the common workplace easier through innovations such as Xbox, Windows Client, Banner advertising, Bing, tablets, Surface laptops, and desktops.
Strengths – Microsoft prides in its pristine balance sheet and how it can make purchases while in search of growth and profitability. The business's businesses are considered to be cash cows as 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 organization 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, leading edge platforms, and insightful management have given Microsoft a good opportunity to provider shareholders enticing growth and earnings.
Threats – Amazon prides in a considerable lead over Microsoft within the public cloud realm. There is no room for error because of 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 doesn't lead the pack. In fact, because of the positive run of Microsoft's stocks recently, its yield has fallen considerably to simply 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's not a secret that companies for example IBM have struggled to locate 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 continue to be strong cash cows with very little sign of stronger competition coming. 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 yesteryear decade, Microsoft Inc has grown its dividend by a yearly 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 performs this figure stack up against its peers? Intel continues to be increasing its dividend at single-digit rates recently. 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 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 organization 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, a minimum of 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 just how Often?
Yes, Microsoft pays healthy dividends, and it has become a favorite of numerous income investors. The last 15 years have indicated the way the company keeps building trust and adding value to the 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 along with 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 nutritious 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 reveal that Microsoft is a viable and reasonable long-term holding for a diversified dividend portfolio.