When people think about blue-chips, they imagine a big, slow firm generating stable corporate earnings and a good dividend yield. Blue-chips, to most people’s minds, are not capable of new innovations or substantially increasing their corporate earnings and dividend yield. But Microsoft Corporation (NASDAQ/MSFT) might be the exception to the rule.
Yes, I know what you’re thinking, Microsoft stock hasn’t moved all decade, until the last few months. I would agree with that sentiment, although an investor would’ve received a nice return from their dividend yield. But Microsoft has been undergoing big changes over the past five years and this investment strategy of being more innovative might be about to pay off.
Blue-chips tend to stick to a safe investment strategy, one that isn’t known for taking too many risks. This also doesn’t expand corporate earnings, just keeps them stable. From that standpoint, Microsoft is like many blue-chips in paying out a steady and safe dividend yield, currently estimated at 2.5%. But unlike many blue-chips, Microsoft’s research department has been working on many new innovations about to hit the retail shelf.
Just released for beta testing is “Windows 8. “After the disaster that was “Vista,” Microsoft went back to the drawing board and really tried to create a product that the market would want. Yes, many parts of Windows 8 are similar to operating system of Apple Inc. (NASDAQ/AAPL). But it’s better to move in the direction of a market leader in innovation than down a completely unknown path. While many parts do appear similar, from early reports, testers are giving Microsoft good reviews overall. This is resulting in the share price of Microsoft continuing to move up.
Since December, the price of Microsoft shares has gone up approximately 30%. Even at these levels the stock price doesn’t appear to be overly expensive, with a forward price-earnings ratio of just over 10, a forward dividend yield of 2.5%, and strong corporate earnings. With expectations of Windows 8 to accelerate the software upgrade cycle by businesses and the investment strategy by Microsoft to better integrate the PC, tablet and cell phone all based off one operating system, this might prove to be a strong catalyst for corporate earnings over the next 12-14 months.
Microsoft was intent on lower barriers of collaboration amongst different platforms, seamlessly integrating the online experience with varied hardware devices. Don’t forget; Microsoft is still the king in the corporate software sector. If it can develop value with its PC and mobile operating system, this might be an added push to expand sales in all categories. Instead of having operating systems separate, this integrated approach is new for Microsoft, a sign that some blue-chips can indeed change their investment strategy.
Some blue-chips like Microsoft can innovate, as seen from some examples of projects the company has released showing what its research department has been busy working on for the future. One such project is a 3D see-through monitor. This new technology is similar to the movies where Hollywood actors move objects on the screen around, Microsoft is actually making this fiction into reality. It’s not clear when such innovations will be ready for the market, but it is apparent that some blue-chips like Microsoft really are getting creative in their investment strategy and this will continue to drive corporate earnings and their dividend yield.