Microsoft (MSFT): A Stable and Consistent Player

Microsoft’s (NASDAQ:MSFT) extensive market penetration, strong brand recognition and the culture of spending significantly in research & development of new products allowed it to build a history of generating increasing earnings and cash flows. Consequently, the company has returned a significant amount to investors in the form of dividends and share buybacks.

In the trailing twelve months, its return on equity ratio was standing around 24, higher than the industry average of 20. The company has a long history of making regular increases in dividends. Recently, it increased the quarterly dividend by 8% and analysts expect a similar increase for the next year.

The company also recently approved a massive $40 billion buyback program, indicating the company’s confidence in their future fundamentals. In the latest quarter, Microsoft returned $4.6 billion to shareholders in the form of share repurchases and dividends.

Microsoft has the potential to sustain its returns for investors, thanks to its investments in cloud-based services. In the latest quarter, its revenue from Productivity and Business Processes segment increased by 22% to $8.0 billion, while revenue from Intelligent Cloud increased 11% over the prior year period.

Its earnings and cash flows also increased at a strong rate, creating a room for the potential growth in dividends. It generated $8.9 billion in free cash flows in the latest quarter, compared to dividend payments of $3 billion. Thus, the company has the potential to sustain its increasing cash returns.

Microsoft has also been rewarding investors through share price appreciation. In the last five years, its stock price increased 134% to $70 a share. Its strong future fundamentals and the potential growth in financial numbers are likely to offer support to its share price in the coming days. Therefore, defensive investors can bet on this stable and consistent player for sustainable cash returns.

The author does not own Microsoft shares.

Alexander is an analyst for who specializes in index and commodity trading. His outlook is usually near-term to medium-term. He has over 10 years of experience in the financial industry and began his career at the dealing desk. Alexander holds a Bachelor’s degree in Economics from University of Delaware.