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Microsoft: Dynamic Dividend Growth Potential

Apr. 06, 2018 9:58 AM ETMicrosoft Corporation (MSFT)16 Comments
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  • Microsoft has been one of our favorites for some time.
  • The company has demonstrated both the capacity and willingness to keep raising its dividend payout, and we think this will continue.
  • Microsoft is what we might call a Dividend-Aristocrat-to-Be, as we expect management to keep raising the quarterly payout each and every year.
  • Investors should still be cautious about Microsoft's valuation as even the high end of our fair value range doesn't imply too much upside.

By The Valuentum Team

We've liked Microsoft (NASDAQ:MSFT) for a very long time. There were few other companies, in which we've had greater conviction these past many years, and we wanted to share a little bit of our history with the name. A look at our archives on the company is something else. In October 2011, we said, "Microsoft Remains a Steal At These Levels," and we followed up in December of 2011: "Microsoft: Undervalued, Boasting Best-in-Class Yield," and then again in January of 2012, "Microsoft's Valuation and Dividend Prospects Make It Best In Breed." We pounded the table time and time again in the years following, too.

We hope this helps set the context for the note behind how much, and how long, we have liked Microsoft. We're not biased to liking the company. We just love financial analysis and put a considerable emphasis on the cash flow statement and balance sheet. That said, we have to admit that we weren't as excited as we maybe should have been with the LinkedIn deal, as we are so laser-focused on economic value add, but we think that tie-up will work itself out in time. It's hard to find great assets at cheap prices, but that's what investing is all about. Microsoft has solid competitive advantages, considerable free cash flow generation, and a very healthy balance sheet.

Hard Not To Like Microsoft's Operating Performance

Image Source: Microsoft fiscal second-quarter 2018 slide deck

At the end of January, Microsoft reported very strong fiscal second-quarter 2018 results. Total revenue growth was amazing at the company, with the company posting 15% growth in 'Intelligent Cloud' revenues. Microsoft held the line with gross margin in the period, but it managed to drive operating income 10% higher. It's hard to be disappointed with that performance, but we were probably even more excited by its free cash

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We offer subscriptions and exclusive newsletters. Visit our website at www.valuentum.com for more information. Valuentum is an independent investment research publisher, offering premium equity reports and dividend reports, as well as commentary across all sectors/companies, a Best Ideas Newsletter (spanning market caps, asset classes), a Dividend Growth Newsletter, modeling tools/products, and more. Valuentum is based in the Chicagoland area. Valuentum is not a money manager, broker, or financial advisor. Valuentum is a publisher of financial information. Please read our Disclaimer that applies to all articles published on Seeking Alpha: http://www.valuentum.com/categories/20110613. Follow us on Twitter: @Valuentum

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.

MSFT is included in Valuentum's simulated Dividend Growth Newsletter portfolio.

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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