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Will Microsoft's Big Problem Cause Losses For Shareholders?

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Sure Dividend


  • Microsoft's stock price has soared since the Great Recession, but so has its valuation.
  • Today, shares trade for a price-to-earnings ratio 80% above its average valuation over the past 10 years.
  • Microsoft is a tremendous business, but because of its high valuation, the stock is not a buy today.

By Bob Ciura

It is almost impossible to find anything wrong with Microsoft Corporation (NASDAQ:MSFT). The company is growing at a high rate, thanks to its successful transition to cloud software and services. It also has an excellent balance sheet, and is a strong dividend growth stock.

Microsoft is a Dividend Achiever, a group of stocks with 10+ consecutive dividend increases. You can see the entire list of all 265 Dividend Achievers here.

At the same time, Microsoft stock has had an unstoppable rally since 2009. Shares have appreciated by more than five-fold off the Great Recession low.

ChartMSFT data by YCharts

The huge rally has been due in part to Microsoft's earnings growth. But it has also been due to a rising price-to-earnings multiple. Microsoft's valuation has expanded significantly, and is now dangerously above its average over the past 10 years. In addition, Microsoft's dividend yield has sunk to a multi-year low.

While there is no shortage of accolades an investor can heap on Microsoft as a business, the stock does not appear to be an attractive investment today.

Business Overview

Microsoft is a technology giant. It manufactures a wide range of software, including its flagship Office and Windows. Its other main products include the Xbox video game business, Surface tablets, and it also owns LinkedIn.

Microsoft has had a lot of momentum recently, thanks to its transition away from the personal computer. Sluggish PC sales around the world compelled the company to move into the cloud. Its cloud offerings, such as Azure and Office 365, are performing well.

In fiscal 2017, Microsoft’s adjusted revenue increased 5%. Cost controls and share repurchases fueled 19% earnings per share growth. The company ended the fiscal year on a strong note. In the fourth quarter, revenue grew 10%, while adjusted earnings per share soared more than 40%.

This article was written by

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Sure Dividend helps individual investors find high quality dividend growth stocks with strong competitive advantages suitable for long-term holding. The authors who write for Sure Dividend on Seeking Alpha are as follows:Bob CiuraBen ReynoldsJosh Arnold

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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