Wednesday, September 4, 2013

Dividends & Income - Microsoft

Microsoft tests investors:

How many times will Microsoft (MSFT) test even the most disciplined income investor (me?)   What are we to think of the Ballmer retirement, the Nokia acquisition, the PC market?     

These are factors you cannot ignore yet you have no control of any of these events.   You read one expert telling you all is well; you read another expert telling you to dump the stock; and you watch the tape waffle around $31.00.   And, still you have no control.  This is why you have to make your investment decisions based on another discipline.  The discipline I use is my Dividend Machine Strategy.

Dividend Machine Experiment:

My work with dividend machines could be called an experiment.   The 2011 and 2012 portfolios are set and now I can evaluate how the strategy worked.   In this blog I write about my personal buys and sells and covered calls, but once the blog’s portfolios are set, I do not trade.    Note that the 2013 portfolio is still in development.

Microsoft (MSFT) as a Dividend Machine:

Microsoft (MSFT) took a long time to show up as a dividend machine.   Not until October 7, 2012 did MSFT meet all four of my dividend machine criteria.   Click here to see the original post on MSFT.  That was about eleven months ago.    

I am dedicated to dividend and income investing because that is one of the ways I fund my life.   Therefore, any analysis of my dividend strategy work has to concentrate on how MSFT performed as an income stock.    Let’s take a look. 

Results from Eleven Months of owning MSFT:

During the past eleven months we bought 100 shares on October 8, 2012 @ $29.85; the dividend yield at that time was just above three percent.    We immediately sold a December Call.   In January when the price of MSFT fell to $26.74; the dividend yield at the time was 3.44%.   We immediately sold a March call.  Four dividends were received (November, 2012; February, 2013; May, 2013; and August, 2013.)  Each of the above calls expired.   The final trade to date is an October $35, 2013 call on all shares.

The table below presents the data on MSFT.   Income over eleven months = eight percent.   Capital gain over eleven months = thirteen percent.   Total return = over twenty percent.    



My take is that I will continue to hold MSFT.    If the stock price goes down and the dividend continues to go up MSFT, I could add to my position.   My favorite result would be it goes up enough that the call buyer takes my 200 shares at $35 which would add another eleven percent to my capital gain.  My worst case scenario is MSFT’s price goes down and they do not continue to increase the dividend.   Then I would sell!   Right now I’ll stick with it because I am a disciplined income 

The Money Madam