As much of a blue chip now as I’ve ever been in the past, Microsoft (MSFT 0.30%) has continued to reward its long-term shareholders. Despite some recent obscurity hanging over this and other tech stocks, Microsoft’s stock price has generally been able to rise over the years. In fact, if we look through a lens of nearly 20 years, the stock is pretty much the same.
A 10 bagger and then some
Let’s go back to a time when Microsoft, hounded by shareholders for never paying a dividend despite sitting on a monstrous pile of cash, caved in and declared its first payment in January 2003.
By buying $10,000 of the company’s stock on the day the first dividend was paid, you would have netted 421 shares with some change on top. This position would be worth a little more than $100,940.93 today, for an increase of more than ten times.
And that doesn’t count dividends. Microsoft quickly switched from an annual payout to a quarterly payout in late 2004 and hasn’t looked back. Also in 2004, it dispensed a special dividend of $3 per share. If we factor in these payments, our total return on that initial $10,000 outlay on the stock would be north of $110,730.
Many fingers in many pies
The dividends are sweet, but the acceptance and adoption of Microsoft is not the only reason the stock has risen so dramatically. No one has ever managed to knock the company off its perch as the dominant PC operating system (OS) and productivity suite provider – its Windows operating system is by far the leader in the first category, and Microsoft Office continues to surpass the competition in the world. the last ones.
From this solid foundation, Microsoft has branched out over the years into a host of other lucrative endeavors.
It was not always successful with such incursions – remember the Zune line of personal music devices or Bing search engine that tried to compete with Alphabetthe mighty Google (and continues to be a distant runner-up)? It has gotten smarter about its segments in recent years, thankfully.
These days, Microsoft is extremely competitive in cloud computing, for example, with its Azure being the No. 2 operator in that segment. The company’s gaming unit, anchored by the enduring line of Xbox consoles and (if all goes well) will soon be well augmented by the purchase of Activision Blizzardhas also been a solid performer over the years.
Yes, Azure’s once-hot revenue growth is slowing, but the business is still making money for its owner, with a 35% year-over-year improvement on the top line in its most recent quarter. It is important because the segment Intelligent Cloud Azure is a part of contributed almost 41% to the total revenues of the company during the period.
There is still plenty of room for more double-digit growth. The overall cloud market is expected to grow at a compound annual growth rate of just under 18% between the years 2022 to 2028, according to Fortune Business Insights projections.
A real deal from the technology sector
Microsoft’s stock price – down almost $100 per share from its peak at the end of 2021 – is not only due to the decline in technology stocks. Despite the above-mentioned growth, some investors expected better, and were not congratulated by the “slowdown” of Azure.
However, this is a large, powerful and resilient company with numerous revenue streams and costs that are modest compared to sales. Analysts expected a continued improvement in the key figures; Collectively, they estimate that revenue will increase by 7% and earnings per share by 4% in the current fiscal year compared to the previous one. The next fiscal year should be even better, with those earnings coming in at a respective 13% and 17%.
This growth, combined with high profitability, will help raise free cash flow (FCF) and, by extension, the dividend.
So, ultimately, what you have with Microsoft is a slightly out-of-favor company that still has double-digit growth ahead and is well poised to enact continued dividend increases. To me, this is a pretty good stock to own.
Suzanne Frey, an Alphabet executive, is a member of The Motley Fool’s board of directors. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Activision Blizzard, Alphabet and Microsoft. The Motley Fool has a disclosure policy.