Is Microsoft a Stealth CD With Upside?
While Microsoft's (NASDAQ:MSFT) stock price has gone nowhere in the past ten years, it quietly collects and stockpiles cash each and every month. It garners little respect in the marketplace but has a cash hoard of $68 billion, and pulls in around $2 billion more per month. Some might argue that a business which regularly generates such huge sums of cash should be high on the list of companies worth owning but Microsoft is instead widely unloved. Most believe it is stuck in a declining market for PC's and unable to break in to the high growth market for mobile devices.
Consumer and investor sentiment has been running against Microsoft for many years. And the company has certainly contributed to that sentiment by making more than its share of missteps with poor product launches and being behind the curve in mobile. And yet…it continues to rake in cash each and every month like clockwork. Steady as a metronome. Lots of cash.
With all that cash Microsoft pays a healthy dividend yielding 3.29%. That is far in excess of what a CD will pay in today's environment, and has been for the past several years. So if you have cash in your portfolio earning next to nothing, and you are looking for a steady place to park it with a decent yield, Microsoft is a good place to look. Not only is the yield safe, the stock price itself has been steady with a 52 week low of $26.26 and a high of $32.95. With the stock currently trading at or near $28 it likely has a floor under it both from support at the $26 level and from the solid dividend it pays. While not as safe as a federally insured CD, it seems a safe place to park some of the cash you might have built up out of any fear you have had of stepping more fully into the market.
In addition, there may be some upside to the stock as several stock rating sites have a favorable opinion of the company:
Stock Scouter Rating 8 of 10
TheStreet.com Rating B (Buy)
Zacks.com Rating 3 of 5 (Hold)
S&P Cap IQ Ranking 5 Stars
Fidelity.com Rating 8 of 10
Best case: Microsoft finally gains some traction and rises, either on its own or as a rising tide lifts most of the market in 2013. Most probable case: the stock price continues to languish in the $26-$28 range and you collect a 3.29% dividend yield in an otherwise poor yield environment. Worst case: the stock falls below its solid level of support at $26 but you continue to collect the dividend and wait for better times. With a company that collects and throws off cash like Microsoft, I believe the downside is limited.
Disclosure: I am long MSFT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.