When it comes to stocks, Microsoft Corporation (NASDAQ:MSFT) is as blue chip as they come. The technology giant has been a portfolio staple for decades and has powered generations of investors with long-term gains.
In fact, had you bought MSFT stock when it went public back in 1986, you would have made nearly 67,000% on your investment. No wonder why Bill Gates is the richest person on the planet.
And MSFT stock continues to impress investors. Mr. Softy was up an impressive 16% last year alone. With such an extraordinary returns history, the question is, can shares of Microsoft continue to make some serious money for its investors going forward?
With the following three catalysts in play, the answer is a resounding yes. Microsoft is still one of the better long-term buys in tech.
Everything to Love About MSFT Stock
The Cloud: While Microsoft is still the dominating force in PC operating systems, it’s future is a bit more cloudy. The continued rise of cloud computing and running virtual machines is driving MSFT stock into the future.
According to technology market research firm IDC, worldwide spending on cloud computing services is expected to grow to $195 billion by 2020. That’s great news for Microsoft, which is the second-largest player in cloud computing — behind Amazon.com, Inc. (NASDAQ:AMZN). But Azure, Microsoft’s main platform, is quickly growing at a faster clip.
Microsoft continues to snag larger enterprise customers. Amazon has done well with smaller firms and regarding infrastructure as a service (IaaS). But the win for MSFT is that Azure can span on-premises and cloud environments. According to tech analysts, many large enterprise IT users still have plenty of hardware of their own and aren’t ready to fully embrace the cloud. The full migration of these larger customers is still in the early innings, and because of its capabilities, Microsoft has been quite successful at snagging them.
Revenues for Azure surged a whopping 93% last quarter versus the year-ago period, while overall cloud applications and software increased by 8%. Even better is the future. According to a survey of CIOs by Morgan Stanley, Azure will overtake Amazon Web Services by 2019 in both IaaS and Platform as a Service (PaaS) applications. This continued growth will only continue to drive revenues and profits for MSFT and its cloud division.
The Hardware: It’s no secret that MSFT hasn’t exactly been known for its consumer hardware. Zune anyone? But that has been changing in recent years. Its Surface tablet/laptop hybrid has been a runaway hit. As has its latest Xbox entertainment unit. But the real growth could be from Microsoft’s new Surface Studio high-end PC. While computer sales have slipped thanks to smartphone and tablet usage, high-end PCs continue to feature swift sales figures. After all, there’s plenty of applications you can’t do on the phone.
Long has the high-end computer market been ruled by Apple Inc’s (NASDAQ:AAPL) Mac and smaller firms like Alienware. However, the Surface Studio is a monster of a machine and could significantly take market share from Apple and other high-end producers of PCs.
While it won’t generate the kind of revenue that its cloud operations will, it does get MSFT’s other big business — productivity software — in the hands of more users and could help turn the tide of overall lower licensing fees.
The Dividend: Thanks to its sustainable growth in earnings and cash flows, MSFT stock has quickly become dividend stalwart. Over the last ten years, Microsoft has increased its dividend by 300%. It’s latest increase was another 8.3%. But more jumps could be on the horizon.
For starters, MSFT has about a $121 billion in cash on its balance sheet. That in of itself could lead to more dividends — especially if President Trump plans to allow repatriation of that cash at tax-free rates.
Moreover, gains in cloud computing and other business should help MSFT earn around $4.33 per share in three years. Keeping its average rate of dividend growth, MSFT stock should pay out around $2.10 to $2.15 per share in dividends in three years. That should give it a comfortable payout ratio of around 49%. That’s easily doable and will lend itself to more dividend increases as well.
In the end, the growth in cloud computing and other surprise businesses — like hardware and LinkedIn — will continue to propel MSFT stock forward. It’s hefty, and growing dividend is icing on the cake. For investors looking for one of the best tech stocks out there, Mr. Softy has to be on your list.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.