Has Microsoft Become a 'Must Have' Income Investment?

By Anthony Shields, Minyanville Staff Writer

It’s no secret to anyone that Microsoft MSFT has been struggling to gain market share with its latest hardware releases, and is facing tepid growth overall. While not all of its new products are expected to be as disastrous as Nokia’s NOK Windows 8 Phone, analysts don’t believe that the upcoming Surface tablet or the anticipated release of the Windows 8 operating system will provide the company with big enough hits to make it a major player again.

Still, despite the company’s unenthusiastic expectations, investors might be wise to buy dividend stock in Microsoft now.
 
On September 18, Microsoft increased its dividend to 15%, which may indicate some optimism in the company, despite predictions. According to an article by Seeking Alpha, Microsoft’s new dividend will be $.23 per quarter, which amounts to a $.92 per share annual dividend. Based upon Microsoft’s $31.19 stock price, the current yield is 2.9%.
 
In addition, Microsoft has bought back 16.6% of its shares since 2006, and seems committed to buying back over 8,000 shares yearly. Share reduction normally results is higher dividend increases, meaning that the recent change to 15% may just be the beginning.  
 
On top of that, Microsoft’s earnings per share has continued to grow over the years, and is expected to be $3.05 , even though the stock price has remained fairly stagnant. Revenues for the company have also grown considerably over the years, increasing from $44,282 million in 2006 to $73,723 million this year.

It’s also worth noting that Microsoft is involved in more markets and products than many of its rivals. The company is involved in smartphones, tablets, game consoles, computer software, and search engines. Sure, not all of its products are wildly profitable, but thanks to Microsoft’s many partnerships, no single product has caused the company major losses, either.   
 
Of course, all of this may seem easy to ignore when considering the stale market increases of Microsoft's products, and the prominence of it competitors. Apple AAPL somehow turned the tables on Microsoft, and is now the alpha company in both software and hardware, leaving Microsoft struggling to copy its success.
 
In truth, Microsoft doesn’t have a prayer of growing as rapidly as Apple has of late, but it also hasn’t suffered any major failures that would hurt its growth. Both companies are on the rise; it’s just that Microsoft is growing a little slower. Once upon a time, Microsoft was as big as Apple is now. For all we know, the disappointed reaction to the iPhone 5 could be the first sign that Apple’s time in the sun could soon be ending. 
 
Even if that theory were to come true, though, Apple would still have a lethal enemy in Google GOOG, which may be seeking to replace Microsoft as Yahoo’s YHOO search partner.

Early yesterday, it was reported that Google’s executive chairman, Eric Schmidt, announced the company’s interest in partnering with Yahoo. Although that seems like innocent flirting at the moment, Yahoo’s deal with Microsoft allows for the possibility of the partnership ending as early as next year.
 
Yahoo would have good reasons to work with Google, too. Since partnering with Microsoft, the company has suffered a significant loss of search market share, and Yahoo has already partnered with Google in Japan. Although losing its interest in Yahoo is far from the worst thing that could happen to Microsoft, the loss would seriously hurt its earnings in the search engine market, as Microsoft's Bing is still struggling to establish itself.
 
However, things are not all bad for Microsoft. The company still claims a 47% majority share of the video game market; a business that many of its competitors are wary of entering. This lead could be Microsoft’s key to victory, especially considering that Microsoft's Surface tablet can interact with Xbox consoles, a feature that many analysts have overlooked.
 
In all, Microsoft might not have the brightest immediate future, but its recent dividend increase should indicate that executives have faith in the firm's stability. The company may not be growing as fast as its rivals, but it has its fingers in many pies, and most of its powerful industry partnerships should be stable for the long term.

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