Monday, January 7, 2013

Microsoft MSFT - Buy, Sell or Hold?



Microsoft Corp. MSFT – off over 10% should you Buy, Sell or Hold?

MSFT is a solid dividend machine as noted in my post on October 8, 2012 you can read the original post by clicking on this link http://www.themoneymadam.com/2012/10/microsoft-msft-took-long-time-to-show.html.    However, Microsoft’s stock price is off over 10%.   MSFT traded at $29.85 when I first profiled it as a dividend machine and today it is trading at $26.74 a loss of 10.4%.

How should advanced, conservative income investors approach this dilemma?

The conservative part of the strategy is not difficult.  You could just hold MSFT and wait for the dividend to increase as it has done every year for about eight years.   You have to hold your nose and ignore the unrealized 10% loss.    I am confident MSFT will come back.  One of my reasons for being so confident is the traffic I get on this blog site.   Most of it comes via Microsoft related products.  Only a small portion comes through Apple/Mac projects.  

The advanced, income investor always looks for ways to squeeze income from our holdings provided we get our principle returned or we receive a capital gain.    Here is how I, an advanced educated income investor, am handling this MSFT conundrum.

I added to my position (I bought at $26.64) and then wrote a call on my added shares.   I continue to hold the original shares I bought in October.  These original shares are not on call.   The call on my new shares expires in March; the strike price is $28 and the premium I received is $.40.  Provided the call buyer does not exercise the call until the expiration date and I still own these shares on February 19, 2013, I will receive the dividend of $.23 on March 14, 2013.    My income on these additional shares is $.40 + $.23 for a total of $.63 or 2.35% in just 60 days.   If I can repeat this trade 3 times in a year, I have boosted my yield to over 6 percent.

Look at MSFT as a reliable income instrument if you HOLD, and an even better income machine, if you BUY shares then SELL a covered call.  

TheMoneyMadam






Microsoft Call
March $28


Strike Price
$28.00


Cost Basis
$26.64


Call Premium
$0.40


Dividend
$0.23






Gain in $ if assigned
$1.76


Call Yield
1.43%


Gain Yield
6.29%


Total Gain Yield
7.11%