Tech giant Microsoft Corporation (MSFT - Get Rating) has recently announced a six-cent or a 10% sequential increase in its quarterly dividend to $0.68 per share. The increased dividend is payable to shareholders on December 8, 2022. This reflects upon the company’s ability of shareholder returns and strong cash position.

Its annual dividend of $2.72 yields 1.21% on prevailing prices. The company’s dividend payouts have increased at a 10.5% CAGR over the past three years and a 9.7% CAGR over the past five years. MSFT has a record of 17 years of consecutive dividend growth.

However, MSFT’s stock has declined 15.3% over the past month and 8.5% over the past five days to close its last trading session at $225.75.

Here are the factors that could affect MSFT’s performance in the near term:

Solid Financials

For the fiscal fourth quarter that ended June 30, MSFT’s total revenue increased 12.4% year-over-year to $51.87 billion. Operating income rose 7.5% from the prior-year quarter to $20.53 billion. Net income and EPS improved by 1.7% and 2.8% from the same period the prior year to $16.74 billion and $2.23.

Wide Profit Margins

MSFT’s trailing-12-month EBIT margin and net income margin of 42.06% and 36.69% are 467% and 795.7% higher than their respective industry averages of 7.42% and 4.10%. The stock’s trailing-12-month ROE, ROTC, and ROA of 47.15%, 22.21%, and 19.94% are 608.8%, 461.1%, and 682.1% higher than their respective industry averages of 6.65%, 3.96%, and 2.55%.

Strong Past Growth Story

MSFT’s revenue has grown at a 16.4% CAGR over the past three years and a 15.5% CAGR over the past five years. Its EBIT and net income have grown at 24.7% and 22.8% CAGRs over the past three years. Its EPS has increased at a 24% CAGR over the same period.

Favorable Analyst Expectations

Analysts expect MSFT’s EPS to improve 9.6% year-over-year to $10.09 for the fiscal year ending 2023, while Street revenue estimate of $220.30 billion for the same year indicates a rise of 11.1% from the prior year.

In addition, MSFT has beaten consensus EPS estimates in three out of the trailing four quarters. Its EPS is expected to increase 15% per annum over the next five years.

POWR Ratings Reflect Promising Prospects

MSFT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

MSFT has a B grade for Quality, consistent with impressive profit margins.

It has a Stability grade of B, in sync with its five-year monthly beta of 0.96.

In the 51-stock Software – Business industry, it is ranked #9.

Click here to see the additional POWR Ratings for MSFT (Growth, Value, Momentum, and Sentiment).

View all the top stocks in the Software – Business industry here.

Bottom Line

This tech stock has been investors’ darling for a long time. MSFT’s steady dividend growth record is promising. Moreover, given its solid position in the industry, this big tech stock might be an ideal addition to one’s retirement portfolio.

How Does Microsoft Corporation (MSFT) Stack Up Against its Peers?

While MSFT has an overall POWR Rating of B, one might consider looking at its industry peers, VMware, Inc. (VMW - Get Rating) and Sapiens International Corporation N.V. (SPNS - Get Rating), which have an overall A (Strong Buy) rating.

MSFT shares were trading at $229.51 per share on Thursday morning, up $3.76 (+1.67%). Year-to-date, MSFT has declined -31.31%, versus a -23.37% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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