While the S&P 500 and Dow Jones Industrial Average have given up some decent capital gains on the oil price shock, the NASDAQ Composite has been holding up and relative outperformance among technology stocks is a good thing.
Good buys are tough to come by in a stock market that’s already gone up, but higher-dividend-paying technology stocks still look attractive considering their corporate outlooks.
One of my favorite positions for consideration in a slow-growth environment is Microsoft Corporation (MSFT).
The company has telegraphed strong growth expectations going into next year; it’s currently yielding between two and three percent and is not expensively priced.
Confirming Microsoft’s positive trading action has been Intel Corporation (INTC). This company traded pretty flat between 2012 and 2014, but accelerated strongly earlier this summer on much-improved financials.
Intel’s earnings estimates have been going up across the board for all upcoming quarters and full-year 2015.
Microsoft’s latest quarterly numbers produced record sales. Revenues at the company’s devices and consumer divisions grew 47% over the same quarter last year to $10.96 billion. Total first-quarter sales in fiscal 2015 grew 25% to $23.2 billion, which despite the Nokia device business acquisition, is a major accomplishment.
Microsoft reports its second fiscal quarter of 2015 on January 26, 2015. I believe both the company’s operational momentum and stock market performance are likely to continue on a positive note.
If you’re not an income-seeking investor, a company like Microsoft is a good candidate to consider ongoing dividend reinvestment. (See “Microsoft Expecting Its Strongest Quarter.”)
Microsoft is a blue-chip technology company and those quarterly dividends add up fast to become more shares, which become more dividends, and so on. Dividend reinvestment is a great tactic in which to build wealth over time. I believe it to be an underexploited portfolio strategy among investors who may not view dividend-paying blue chips as exciting or fast-growing enough.
For the investment risk, rising dividends from blue-chip stocks add up more quickly than you might imagine. Dividend reinvestment provides a compounding effect that can significantly boost your total return from one security over time.
Microsoft’s stock has convincingly broken out of its previous long-term trend—the great technology bubble price consolidation that lasted 13 years.
And operational momentum has returned to the company, with the expectation of earnings growth to be almost double its previous five-year rate.
In any case, an equity investment in a company like Microsoft is a blue chip technology play in established markets for enterprise and consumer software, combined with some new technologies and devices. The software upgrade cycle should accelerate with “Windows 10,” slated to be introduced later in calendar year 2015.
This is a difficult market in which to be a new buyer of stocks because virtually everything’s gone up so tremendously over the last few years. I continue to like the market’s existing winners from the 2013 breakout. This includes a company like Microsoft, which is a dividend-paying blue chip with solid growth potential.