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sagitarius84 (42.49)

Microsoft (MSFT) Dividend Stock Analysis



February 13, 2009 – Comments (4) | RELATED TICKERS: MSFT

Microsoft Corporation provides software products for computing devices worldwide.

Microsoft is a major component of the S&P 500, Dow Industrials and Nasdaq 100 indexes. Microsoft has been consistently increasing its dividends since 2003. From the end of 1998 up until December 2008 this dividend growth stock has delivered a negative annual average total return of 3.90 % to its shareholders.
10 Year Chart

At the same time company has managed to deliver a 11.30% average annual increase in its EPS since 1999.

10 Year EPS Trend Chart
The ROE has decreased from a high in 1999 at 36% to 12% in 2003, before recovering strongly to over 50% in 2008.

10 Year ROE Trend Chart
After a long history of technological innovation, Microsoft showed signs of maturing as a company when it initiated a dividend policy in 2003. Annual dividend payments have increased by an average of 41.60% annually since 2003, which is much higher than the growth in EPS. The past three years have shown annual increases of 12,11 and 15% respectively. I would expect MSFT to increase its dividends by 10% over the next five years, until it reaches a dividend achiever status.
An 10% growth in dividends translates into the dividend payment doubling almost every seven years. Since 2003 MSFT has actually managed to increase its dividend payment over five times.

10 Year Dividends Per Share
The dividend payout has remained below 30% for the majority of our study period. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

10 year Dividend Payout Ratio

I think that MSFT is attractively valued with its low price/earnings multiple of 9.5, and a low DPR. However the current dividend yield is below the 3% minimum threshold that I have set. Another threshold would be to wait and see if MSFT could actually achieve a dividend achiever status. As a value holding MSFT is a buy on dips below $17. As a dividend growth stock, it might take several years to fully mature. Once it does however, MSFT will probably be the premiere tech holding for dedicated dividend investors.

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4 Comments – Post Your Own

#1) On February 13, 2009 at 10:05 AM, kaskoosek (30.23) wrote:

Backward looking.

There is no reason for the corporate world to upgrade to a new OS.

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#2) On February 13, 2009 at 11:19 AM, jgseattle (26.35) wrote:

MSFT sorry to say for almost all of it life has not been an inovator.  Now it is FOLLOWING Apple into retail which I think will be a disaster for MSFT. 

The Apple retail strategy is based on Mac, Iphone, and Ipod sales with supporting equipment sales.  What will MSFT base their retail on?  Office?  Vista?  Xbox?  Zune?  Additionally, MSFT's retail efforts may piss off its retail channel partners who do not want to compete with MSFT.  (good thing it has a monopoly in the OS and Office area)

I think the MSFT is getting to a value position put you are more or less holding a mature company and do not expect large returns.  I do not think the management of MSFT are good at capital allocation, they are good at marketing. 

If you strip out the OS and office I wonder what MSFT would look like?  A pretty average to poor tech company in my opinion.

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#3) On February 19, 2009 at 3:00 PM, tfirst (64.35) wrote:

Why is Bill dumping his stock?

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#4) On May 07, 2009 at 1:31 AM, FinancialModeler (26.00) wrote:

Has a gigantic economic moat, competant management, huge amounts of cash, zero long-term debt, a durable competitive advantage, a tech company with a dividend, high margins, high returns on equity and capital, historically low PE and PS, excellent global brand, excellent advertising, has a cult-following, hundreds of millions of loyal customers,...

I could go on. But you get the idea. 

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