Future-proof your portfolio with Microsoft
With a stable of growth drivers, Microsoft is a thoroughbred of a stock
I’m not breaking any news by telling you Microsoft is cleaning up in the cloud. Azure has been on fire as companies all over the world, big and small, make the migration to cloud computing services.
Azure isn’t as big as the behemoth that is Amazon Web Services … but it’s growing faster.
In the March quarter, AWS had revenue of $18.4 billion, up 37% from a year ago. Microsoft Azure, meanwhile, had $11.3 billion in revenue, up 46%.
See.
Azure is going to be a huge part of Microsoft’s future. It improves security and scalability, saving companies time, money, and staff workload. Those aren’t things companies simply want … they're things they’ll need to stay competitive.
Office and Xbox, probably the best work-play combination you can find, are profit drivers, too, so Microsoft makes money whether people are on the clock or not.
Here are three reasons the stock offers a great way to future-proof your portfolio.
Microsoft drives innovation
Despite the wide range of competitive products Microsoft already has on the market — the ones everyone already knows about — don’t be surprised if the tech giant has more than a few other potential cash cows grazing in increasingly greener pastures just down the road.
Power Platform, for example, could be one such cow.
Ever heard of it? No? Great … that’s the point.
Microsoft unveiled the platform — a way for developers to build and customize apps, automate workflows, generate reports and create chatbots, all with an emphasis on improving productivity — way back in 2018 (ah, the good ol' days).
Charles Lamanna, Microsoft’s Corporate VP of Business Apps and Platform, said it’s likely 500 million new apps will need to be built over the next five years — a number eclipsing all the apps built in the last 40 years combined.
The problem, though, is the industry doesn’t have nearly enough software developers to do the job.
That’s where Power Platform comes in. Its low-code approach aims to help companies offset any current and future programmer shortages by making it easier for newly-trained developers to piece together halfway functional applications on day one.
Today, Power Platforms generates less than 0.05% of Microsoft’s $200 billion in annual revenue. Analysts like Brent Thill, who had a $400 price target on the stock, said Power Platforms could become “a multi-billion-dollar growth pillar,” meaning it would make up a whole lot more than 0.05% of revenue if everything plays out the way he, and Microsoft, thinks it will.
Power Platform, and its potential for growth, are why I invest in Microsoft. It’s why I made the stock my first-ever purchase when I picked up $1,000 worth Sept. 15, 2022.
There’s more to like, too.
Microsoft’s suite of productivity apps is, well, sweet
Office hours may be slightly shorter than they used to be, but people, whether they’re in the office or working from home, still need to be productive.
Microsoft has the tools people need to work from anywhere. It also has plenty of experience monetizing them. I don’t see that changing soon.
Productivity hasn’t been a strength for Americans trying to shake off the pandemic. Many aren’t returning to work and companies are arguing those staying at home just aren’t getting the job done as efficiently as they did when they were in the office … with the boss constantly looking over their shoulder, I’m sure.
Doing the bare minimum, or quiet quitting, is a thing these days … and it’s freaking out top CEOs. Google literally launched an initiative to get ideas from its more than 174,000 employees on how to be more efficient moving forward. That alone tells you it’s top of mind for really smart guys, like Google CEO Sundar Pichai.
Microsoft can’t solve quiet quitting — most teams, after all, are using video-conferencing apps like Microsoft Teams, cloud-storage apps like Microsoft OneDrive and creative tools like Microsoft Word and Microsoft PowerPoint to pretend to be productive in the first place. That’s not the point, though. What’s important to remember is simply that they’re using them in the first place.
Here’s a list of some top Microsoft apps:
Edge
Excel
OneDrive
OneNote
Outlook
PowerPoint
Skype
Teams
Windows
Word
The future of work is still very much up in the air. At this point, who knows if people will return to the office or not? Most employees with the option to work from home are doing just that. The employers that want people back in the office, meanwhile, don’t seem to be having much success convincing them to come back. Either way, Microsoft will continue to offer tools to help American workers get the job done.
The stock is one of my favorite long-term plays because of its ability to move businesses forward through its innovative software and services.
The stock itself, which has been hammered so far this year, has a lot to like fundamentally, as well.
Microsoft is a top dividend-growth stock
That statement alone, the fact Microsoft is one of the best dividend-growth stocks you can buy based on its track record over the last decade-plus, might not normally be a reason for investors to buy.
It does mean, though, people looking for income and double-digit annual raises will always be in the market for shares of Microsoft.
Some people swear by the strategy, and I’d agree there aren’t many downsides to DGI if you have a long time horizon, but I don’t think market participants should simply overlook stocks that don’t pay dividends. The ones that don’t, like one of my recent purchases Adobe (ADBE), use excess cash to grow the business. Without dividend obligations to shareholders, growth companies can do just that … grow. I think every investor needs to have at least a couple of growth stocks in their portfolio. I own Adobe and Robinhood (HOOD). They might be the only two I ever own, but I’m banking on them to outperform my dividend-paying stocks in terms of capital appreciation. Not by a little, either.
All that said, this environment is begging people to buy dividend-growth stocks. Anything with a little yield to offset the market’s slow and steady decline has at least helped to soothe the sting.
Microsoft pays an annualized dividend of $2.72 a share. That comes out to a little north of a 1% yield, but that yield is growing. It’s growing as Microsoft’s share price continues to sink (-17% in the past year) and, well, it’s growing because Microsoft is growing it. The tech giant just announced a nearly 10% dividend increase.
What’s not to like? When the market recovers and rates change direction, and they will, Microsoft will be the first stock people run out to buy.
Disclaimer: I’m a market participant, not a financial advisor. This is not financial advice.
