2020 will be a year all of us will remember.
COVID-19 sent countries into lockdowns. And economies into an alarming state.
Even share prices of companies such as Microsoft Corporation (NASDAQ:MSFT) went tumbling down.
But that is not the end of the story.
After reaching lows of US$133 in March, Microsoft’s stock rallied to new all-time high at around US$213.
Source: Yahoo! Finance
Today, Microsoft is one of the largest companies in the world by market capitalization.
I particularly like its diversified products, ranging from PC software to gaming consoles.
And now, even being a cloud provider themselves.
What’s more interesting is that it already dominates the PC software market, with 80% of PCs having its Microsoft Office Suite of products being installed.
Microsoft 365 has played a huge role in this, reaching up to one billion active devices up to date.
Microsoft’s Cloud Computing is Growing at Breakneck Speed
Moving to a Software as a Service (SaaS) company, Microsoft provides organizations with a simple solution — Azure.
This cloud platform supports some of the most innovative sectors, from healthcare to even e-commerce platforms.
Today, 95% of the Fortune 500 companies run on Azure.
And it’s currently the second largest cloud computing company by market share, behind Amazon Web Services.
With fifty billion devices set to be online by 2030, Azure has great room for growth.
And it doesn’t just end there.
Ever since Microsoft its current CEO, Satya Nadella, came on board in 2014, the company’s share price saw spectacular growth of up to 600% over the past six years.
For a long-term investor, that’s an astonishing annual growth of about 32%.
Satya Nadella is a visionary leader.
He wants to empower every person and organization through digitalizing their productivity and platform tools.
Looking to the future, he commented Microsoft is well positioned to take advantage of future growth as spending on technology will double in the next decade.
In fact, Azure’s sales have already grown by 47% year on year during its first quarter fiscal year of 2021.
Even with COVID-19 vaccines rolling out, companies will still maintain some form of “work from home” schedule.
And Microsoft is poised to capitalize on this.
Here’s the thing.
All of its main business segments have been shifting towards Cloud.
What this means is Microsoft’s sales will be recurring and predictable this way.
Cloud services are subscription-based as opposed to the traditional “one-off purchase”.
This allows Microsoft to continuously provide its best services to organizations.
So far, this has been working well for the company.
Its latest financial quarter showed a strong 12% increase in sales to US$37 billion, as compared to a year earlier.
Clearly, Azure is a seen as a huge game changer for Microsoft.
And Microsoft will continue to grow as more companies shift to the cloud ecosystem.
Source: Company’s Annual Report
Microsoft is a Dominator in Operating Systems
Microsoft is famous for its full suite of office products.
And it is a market leader in the desktop PC market.
But as more enterprises move into a BYOD (bring-your-own-device) model, the future may not be that bright for Microsoft.
There has been stiff competition from competing platforms such as Apple and Google, due to their strong ecosystem.
The emergence of tablets and mobile is a negative for Microsoft, and any future growth will depend on how Microsoft builds its positions in these two areas.
This might seem alarming to investors.
But what isn’t well known here is Microsoft is not late to the game with its Surface family of devices.
Let me explain.
Firstly, Microsoft products has a high switching cost.
With many companies already using the Office platform, it results in the reluctance to switch over to other productivity providers.
Especially since most legacy data were based on Office, companies will find it a huge hassle to port over to a new provider.
Not forgetting that with the emergence of its Azure platform, security and cloud integration, which the BYOD model is highly dependent on, will play an integral role in retaining its enterprise customers.
And this holds promise to the future of Microsoft.
What’s even better is the cloud computing market is a beneficiary of the pandemic and is set for an explosive growth.
According to Global News Wire, in just five years, the global cloud computing market size is set to hit US$832 billion by 2025, up from US$371 billion today.
That’s an astonishing 17.5% a year.
Microsoft is a Dividend Payer
What makes Microsoft stand out from other technology companies is that it rewards its shareholders through dividend payments.
Source: Company’s Annual Report
If you’ve noticed, Microsoft’s dividend per share has grown from US$0.52 per share to US$2.04 per share, which is close to a 300% increase in 10 years.
In my opinion, that’s an impressive track record that few can boast about.
With record break revenues this year due to the pandemic-induced demand, long-term shareholders will find themselves handsomely rewarded.
If you are like most dividend investors, you might want to consider adding Microsoft Corporation to your watchlist.
Sometimes, investing can be simple.
Always here for you,
Willie Keng, CFA
Founder, Dividend Titan
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