Tuesday, February 16, 2016

Adding MSFT to M* 2016 Portfolio

I am adding Microsoft, symbol MSFT to the M* 2016 Portfolio.  The table below lists the screening criteria I am using in 2016.   This year I am concentrating on growth as well as income whereas, in my previous portfolios I concentrated on income.

Looking for growth is more difficult than income.   Income is obvious in the form of dividends but growth is more elusive.   I added the criteria of requiring revenue growth when I pick a stock. 

One can never be sure the market will add stock price growth in a stock with demonstrated revenue growth.  However, I like the expected pass through of revenue to earnings to dividends.   When revenue growth slows or even goes negative, one cannot expect to see dividend growth.  Income not only comes from dividends, but also from covered call opportunities. 

Microsoft (MSFT) 2016 Fundamentals

Let's take a look at MSFT's fundamentals. I was quite surprised to find Microsoft meets all my criteria.  Trading around $50.50, MSFT  sports a dividend yield of 2.8%.  

MSFT has Earnings greater than dividends paid out; EPS of $1.49 includes a big write off taken during the past four quarters.  Most recent dividends paid out are $1.34 which includes their first 2016 dividend.  MSFT is ex-dividend today.    If you extrapolate the most recent quarterly dividend of $.36 to four quarters, the dividend will be $1.44 which is not much less than EPS.   However,  I expect forward earnings to significantly exceed dividends since they have the big write off behind them.

Dividend growth over the past 5 years has been solid.  D/E (debt to equity ratio) is a solid .53.  This large cap stock (399 billion) has several good calls available.

Microsoft Covered Call

I bought MSFT today at $50.40 and simultaneously sold a May 20, 2016 $55 call for $1.30.   See the table below to see how the call yield and gain are calculated.  Going out to May with the call expiration date allows me a chance to reap the call premium plus the dividend. 

I will add MSFT to my M* 2016 Portfolio at the price of $50.40 with the call premium of $1.30.

Consider MSFT for your portfolio.

M* TheMoneyMadam

Disclosure:  Long MSFT with calls