Is Microsoft an Attractive Dividend Stock?

Broader markets fell on Monday due to an oil shock and coronavirus fears. The S&P 500 and the Dow Jones Industrial Average fell 7.6% and 7.8%, respectively. Microsoft (NASDAQ:MSFT) stock closed 6.78% lower at $150.62 with a market cap of about $1.15 trillion.

However, Microsoft stock rose by 5.6% in today’s pre-market trading session as of 7:09 AM ET. The stock rose after the tech giant announced a dividend increase. On Monday, Microsoft declared a quarterly dividend of $0.51 per share, which is payable on June 11 to shareholders on record as of May 21. The ex-dividend date is May 20. The company hiked its quarterly dividend by 10.9% from $0.46 per share in the third quarter of fiscal 2019. The dividend yield was 1.35% as of yesterday, which amounts to an annualized payout of $2.04 per share. In the second quarter of fiscal 2020 ended December 31, 2019, Microsoft returned $3.9 billion to investors in the form of dividends compared to $3.5 billion in the second quarter of fiscal 2019.

Microsoft’s net revenue rose 13.7% YoY (year-over-year) to $36.91 billion in the second quarter of fiscal 2020. Wall Street analysts expected revenues of $35.68 billion. The company’s Productivity and Business Processes segment reported revenues of $11.8 billion—a rise of 17.1% YoY. Meanwhile, the company’s Intelligent Cloud segment reported revenues of $11.9 billion—a rise of 26.6% YoY. The More Personal Computing segment’s revenue was almost flat at $13.2 billion in the second quarter of fiscal 2020. Microsoft’s adjusted EPS was $1.51 in the second quarter of fiscal 2020, which was better than analysts’ consensus expectation of $1.32.

Analysts expect Microsoft’s revenues to rise by 12.9% in fiscal 2020 to $142.1 billion. The sales will likely rise by 12.0% in fiscal 2021 to $159.1 billion. Meanwhile, the adjusted earnings are also expected to rise by about 19.4% in fiscal 2020 to $5.67 per share. However, the profits will likely rise by 11.1% YoY to $6.30 per share in fiscal 2021.

According to the latest recommendations from 34 brokerage firms surveyed by Reuters, 32 or ~94.1% of the analysts recommend a “buy,” while two or ~5.9% recommend a “hold.” None of the analysts following the stock recommend a “sell.”

Analysts have an average target price of $194.19 on Microsoft. The target price implies a return of 28.9% based on the closing price of $150.62 on Monday. The consensus target price for the stock rose from $193.48 in February. The lowest target price estimate is $133, while the highest is $212.00.

On Tuesday, Wedbush analyst Daniel Ives reiterated his “outperform” rating and target price of $210 on Microsoft stock. According to a report from TheFly, “While Microsoft has roughly a third of its revenue exposed to PCs and supply chain and thus caused the company to take its March guidance off the table a few weeks ago, the vast majority of its revenue and 80%-90% of its valuation is based on its flagship Azure, Office 365, and core enterprise driven franchise.” The report also said, “Given the selloff he has seen in shares, Ives strongly believes even in a more stress-tested model that the risk/reward in Microsoft is compelling at these levels and it remains the best way to play the transformational cloud shift for the coming years.”

IBM (NYSE:IBM) and Oracle (NASDAQ:ORCL) have average broker target prices of $149.94 and $55.48, respectively. The figures imply returns of 27.3% and 20.6%, respectively, over the next 12 months.

Currently, Microsoft stock is trading 21.0% below its 52-week high of $190.70 on February 11. The stock is also trading 33.7% above its 52-week low of $112.65 on March 12, 2019. On a YTD (year-to-date) basis, the stock has fallen by 4.5% as of Monday. In comparison, the broader S&P 500 Index has fallen 15.0% YTD.

On Monday, Microsoft stock was trading 13.4% below its 20-day moving average of $174.00. Meanwhile, the stock was trading 11.0% below its 50-day moving average of $169.18 and 5.0% below its 100-day moving average of $158.52. The stock’s 14-day relative strength index score of 35 indicates that it’s approaching the “oversold” zone.

Microsoft has an upper Bollinger Band level of $196.19. The company’s middle Bollinger Band level is $174.00, while its lower Bollinger Band level is $151.81. On Monday, the stock closed near its lower Bollinger Band level, which also shows that the stock is oversold.

Read An Attractive Entry Level for Microsoft Stock? and Microsoft Stock Could Grow 26% in 2020 to learn more. You could also read Why Microsoft Stock Could Rise on Q2 Earnings Beat.