Short Microsoft? No, Just Buy The Dips Of This Solid Dividend Stock

| About: Microsoft Corporation (MSFT)
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Microsoft (NASDAQ:MSFT) shares were riding high around $31 in September thanks to demand for dividend stocks and on optimism that Windows 8 would create an upgrade cycle for the PC industry. However, both
Windows 8 and the "Surface" tablet have since launched and the demand for these products have not been overwhelming. As a result, the shares now trade below $27. A recent CNBC article summarizes some of the industry disappointment for Microsoft's latest operating system and the Surface tablet (which also runs on Windows 8), and it states:

"Emmanuel Fromont, president of the Americas division of Acer, the world's No. 4 PC maker, said sales of the company's Windows 8 PCs had been lower than expected. He said one factor was the system's unfamiliar design, which appeared to be making consumers cautious. "There was not a huge spark in the market," Mr. Fromont said. "It's a slow start, there's no question."

The clearest evidence of Windows 8's disappointing introduction comes from the research firm NPD, which estimates that sales of Windows machines have actually dropped from a year ago. According to NPD, stores in the United States sold 13 percent fewer Windows devices from late October, when Windows 8 made its debut, through the first week in December, than in the same period last year.

While Microsoft still has a lot going for it, the recent product launch disappointments and the negative headlines about the PC industry are likely to keep putting pressure on the stock. Some investors and analysts are going as far as to suggest shorting the stock, even after a significant recent drop. While it is true that the company faces competitive challenges, it has managed these types of issues for decades and still has been able to churn out solid profits. Microsoft has a number of bright spots that seem to be getting cast aside at the moment. That includes a steady revenue base from Windows, a leading video game system in Xbox, and hundreds of millions of Skype users. Windows has been around for decades, and while it has improved and added features, expectations that it would be revolutionary or spark a surge in revenues seems out of line from the start.

Investors looking for a revolutionary new tech company should probably look elsewhere; however, investors who want value, and a solid and growing dividend should consider averaging into Microsoft on pullbacks. It is trading at just about 9 times earnings while the average stock in the S&P 500 Index (NYSEARCA:SPY) trades for about 14 times. It also offers a yield of 3.4% and Microsoft has a history of raising the dividend. For example, in 2008 the quarterly dividend was 11 cents per share and thanks to regular increases, it has more than doubled to 23 cents in just about 5 years. This company also has a fortress-like balance sheet with about $66 billion in cash and just around $12.4 billion in debt. While Microsoft shares may not provide enough excitement for all investors, heavy cash balances, a history of dividend growth and a solid current yield, could allow this stock to outperform bonds and provide solid returns for long-term investors who buy on dips.

Here are some key points for MSFT:
Current share price: $26.86
The 52 week range is $25.76 to $32.95
Earnings estimates for 2012: $2.88 per share
Earnings estimates for 2013: $3.21 per share
Annual dividend: 92 cents per share which yields 3.4%

Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.

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.