Microsoft Corporation (NASDAQ:MSFT) stock could be a great Dividend + Growth Play.
Microsoft Corporation (NASDAQ:MSFT) stock has recently been ignored by investors for the likes of hyper growth FAANG stocks. The reasons have been obvious, as the Redmond, California based tech behemoth, caught in its transition turmoils, has slipped into negative growth. However, now, under the leadership of Satya Nadella, with a cloud and Artificial Intelligence focus, the tech giant is well placed to get its mojo back. Now, all said, this brings us to an important question: Is MSFT stock an attractive investment opportunity today? We believe Microsoft stock makes a great dividend + growth play now. Let's find out why.
Microsoft giving Amazon's AWS a run for its money.
Microsoft is running high on its cloud growth. In the Q4 earnings call, Satya Nadella mentioned that the company's commercial cloud Annualized Revenue Run Rate (ARR) now exceeds $18.9 billion, on course to surpass their target of $20 billion in commercial cloud ARR in fiscal 2018. In Azure, they have a strong growth catalyst. Azure revenue grew 97% YoY in Q4 2017. A recent report from Synergy Research Group shows that the growth of other major cloud infrastructure service providers is hampering the growth of market leader, Amazon's (NASDAQ:AMZN) AWS. And, Microsoft is the second biggest cloud player after AWS and is growing to catch up with AWS. Microsoft's market share stood at 11% at end of Q2 compared to AWS's 34% but more importantly, it made the biggest market share gain in the last four quarters. Investors, therefore, can remain fairly confident of a further increase in market share given management's guidance of double-digit revenue growth across cloud offerings and the traction Microsoft's cloud offerings are seeing. With global spending on cloud computing forecasted to reach $390 billion by 2020, cloud growth is one good long term catalyst for MSFT stock.
Synergy Research Group's Q2 data shows the enterprise SaaS market grew 31% YoY to top $15 billion in quarterly revenues. The report further states "spending on SaaS remains relatively small compared to on-premise software, meaning that SaaS growth will remain buoyant for many years. Synergy forecasts that the SaaS market will double in size over the next three years, with strong growth across all segments and all geographic regions." Microsoft is the market leader in this space after it overtook Salesforce last year. The Synergy group opines that "Microsoft was already rapidly growing its SaaS revenues, but in Q2 its acquisition of LinkedIn gave its SaaS business a further boost." This is good news for investors as the market leading position and strong industry outlook presents another growth opportunity for the Satya Nadella led-company.
Microsoft's dividend yield currently stands at 2.09% which is higher than the S&P 500's dividend yield of 1.89%. The current yield may not be that high but an important point to note here is that Microsoft's dividend has grown at a 15% CAGR over the last five years. And, further, a recent report states that the tech giant is expected to raise its quarterly dividend payout to 43 cents a share from 39 cents which would take its yield to 2.3%. Given the strong cash flows and return on equity, it is highly likely that Microsoft will continue growing its dividend payments. This makes Microsoft a further attractive investment. Readers can go through our detailed coverage to find out why Microsoft makes a great dividend play.
Buy on dips.
The above three reasons clearly highlight why MSFT stock makes a great dividend + growth play now. Coming to near-term technical outlook, Microsoft stock is very close to overbought territory. The share price is very close to the upper Bollinger Band and had breached the upper Bollinger Band on Wednesday, only to fall back yesterday. The present Relative Strength Index (RSI) measure is also near to the overbought threshold of 70, at 65.71. The technical setup hints that the stock may see a near-term pullback and the stock could fall back to the nearest support level at its 20-day Simple Moving Average (SMA) which stands at 73.59. Investors should look to buy Microsoft stock on any dips taking advantage of the technical setup. Microsoft stock is up 73.72% in the last two years but still, has a lot of room to grow. Overall, Microsoft stock is a good long-term buy.
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