CEO of Microsoft (MSFT), Steve Ballmer, has been under fire. Criticisms range from being too boring, to lacking the ingenuity that will help the company compete with Apple (AAPL) or Google (GOOG). In 2011, David Einhorn suggested that someone different needs to run Microsoft, and the drumbeat has not stopped since then.
Regardless, of one’s feelings about Ballmer, the company has performed well over the past ten years. Given that, it is time to take a hard look at Microsoft and make it part of your portfolio. Here are the facts, with Ballmer as the CEO:
- The cash flow is strong with inventory under control.
- The debt ratio is a manageable 0.16.
- Dividends have grown every year since 2004 at an average annual rate of 21%.
- Earnings growth is an average of 14.7% in the last ten years.
- The P/E (TTM) is a cheap 12.3. This is favorable to the average growth rate of 15.47%.
As of August 16, 2013, the price for Microsoft is $31.80; the fair price for the company is $41.07. With a 2.89% dividend yield, the price lends itself to a margin of safety of 29.2%. Given that this is well beyond the 15% margin of safety required, one should definitely consider this blue-chip company as a buy.
The following ratings currently exist for Microsoft:
- Morningstar (Hold)
- Zacks (Strong Sell)
- MSN Money (10/10)
- S&P IQ Capital (Hold, 12 month target $32.00)
- Thomson Reuters StockReport+ (6/10)
- Second Opinion Weekly Report (Avoid)
- General consensus is Buy/Hold
To emphasize the importance of the rising dividends, one needs to look at it in a simple way. If living on your investments has become your new source of income, does it make since to invest in a company that offers an annual pay raise? Of course it does.
The chart shows the earnings and dividend history for the Microsoft over the last ten years.