8 Best Dividend Stocks of the Dow
Share price: $53.85
Market capitalization: $430 billion
Annual dividend rate per share: $1.44
Dividend yield: 2.7%
Price-earnings ratio: 19 (based on the fiscal year that ends next June)
Main appeal: Attractive yield plus strong record of hefty dividend growth
As a dependable dividend payer, Microsoft now offers the same kind of security as its blue chip peers, such as Johnson & Johnson. In fact, only three U.S. companies carry the top triple-A credit rating: Microsoft (MSFT), J&J and Exxon Mobil (XOM). The important difference is that the software leader in recent years has been boosting its dividend at a faster rate than most of the other 29 Dow stocks, a trend that’s likely to continue. The latest increase: a 16% hike to be paid in December. The payout is backed by $99 billion in cash and securities on Microsoft's balance sheet — and by the firm's stated commitment to share more of its profit directly with investors.
The stock, meanwhile, has rallied this year because of growing conviction that Microsoft is finally getting its growth groove back, after
years of corporate missteps. The company must transform its personal computer-centered business to compete aggressively in the era of mobile communications and the cloud (that is, delivering software and computing via the Internet).
CEO Satya Nadella, who succeeded Steve Ballmer last February, seems off to a good start. In the July-September quarter, the strong dollar hampered results, and earnings edged up a modest 2%, to $4.6 billion, from the same period a year earlier. But Wall Street liked what it saw under the surface: a steep jump in business purchases of cloud computing services, and better-than-expected results from the PC side, thanks in part to the launch of the Windows 10 operating system upgrade. Overall, the quarter saw "strong performance" across the firm, brokerage CLSA says. Growth expectations are still modest in the short term, with operating earnings expected to rise 5%, to $2.77 per share, on sales of $93 billion in the current fiscal year, which ends June 30. But that makes a low bar for Nadella to hurdle.
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