MSFT Stock Should Be on Top of Your Watch List
If you’re an income investor, you probably had to choose between two sets of stocks: 1) ones that offer stable dividends but not much growth potential, or 2) ones with huge upside but no steady yields. But what if there was one company that offers both? Well, there is—Microsoft Corporation (NASDAQ:MSFT) stock.
Of course, the technology sector is not the usual shopping place for income investors. The tech stocks that may make it to a dividend investor’s watch list are more likely to be hardware companies with predictable performance. But in this day and age, technology is changing so rapidly that many tech companies can lose their competitive edge very quickly. Why on earth would an income investor put money in the software-focused Microsoft stock?
Well, as it turns out, the company has the prefect ingredients for a great dividend play.
Let me explain…
First, Microsoft has an unrivalled position in its core business. Its first-mover advantage in the desktop operating system (OS) business was first captured in the 1980s and has translated to today.
The reasoning is simple: When all the programs are written for “Windows,” users are more likely to choose it as their OS. And the more users Windows gets, the more incentive there is for developers to write programs for the OS.
This positive cycle started decades ago. Today, the company is still dominating the PC world. By April 2016, Microsoft had a whopping 87.46% market share in desktop operating systems. (Source: “Desktop Operating System Market Share,” Net Market Share, last accessed May 2, 2016.)
Complementing Microsoft’s industry dominance is its solid dividend history. The company paid its first dividend back in 2003 and has been increasing its quarterly dividend for more than a decade. (Source: “Dividends and Stock History,” Microsoft Corporation, last accessed May 2, 2016.)
From its first quarterly dividend of $0.08 per share to today’s $0.36 per share, Microsoft’s quarterly dividend has been growing at a compound annual growth rate of 14.7%. That is hard to find in the tech world.
Of course, if you look beyond the tech sector, there are plenty of companies with just as good dividend records. The reason why Microsoft stock might be more appealing is its growth potential.
Today, Microsoft is much more than just the maker of Windows. It dominates the productivity software business, has a huge presence in cloud computing, and even makes one of the best-selling tablets, the “Surface.”
But those things are still old news. What could propel Microsoft stock to new highs is its development in one of the hottest fields in tech today—augmented reality (AR).
Unlike virtual reality (VR), which submerges users in a virtual world, augmented reality adds a layer of computer-generated inputs (sound, video, graphics) on top of the real world.
Microsoft has built the “HoloLens,” an AR headset that projects a virtual world on top of the real world through a pair of holographic lenses. Users can create and shape holograms with gestures.
Most of the VR headsets today are geared towards gaming. Microsoft’s HoloLens, on the other hand, can have many more real-life applications. For instance, it can be instrumental in remote instruction and 3D computer-aided design.
The HoloLens development kits have already been shipped out to developers. Let’s wait for more wow factors when it is finally released.
The Bottom Line on MSFT Stock
When you have a solid core business, a few other profitable segments, and some moonshot projects that might be huge, you know you’ve found a winner. Combining that with more than a decade of impressive dividend growth, Microsoft stock deserves a spot on every income investor’s watch list.