Buy Microsoft for Its Cloud-Based Future - and Its Solid Dividend

Microsoft (MSFT), the world's largest software company, is off to a bad start this year. Though its shares surprised investors in 2014 with 24% gains, Microsoft has wallowed in negative territory since New Year's, down 6.5%. That makes it the third worst-performing stock in the Dow Jones Industrial Average (DJI). But investors should be piling in. I don't see a scenario where Microsoft, which pays a hefty dividend yield of 2.85%, will end 2015 down. Despite its recent downbeat fiscal second-quarter results and gloomy guidance, made worse by headwinds from the strong U.S. dollar, analysts are broadly positive about Microsoft's direction.

The long-term personal computer market remains a pressing issue, though PC shipments rose for the first time in two years last quarter. But the arrival of Satya Nadella in the CEO's office has instilled a level of confidence not seen since Bill Gates was at the helm. For those reason, and others, analysts are giving the Redmond, Wash.-based company the benefit of the doubt. The shares have a consensus buy rating, and Microsoft's earnings are expected to grow at a 10% annual rate of in the next five years. These figures look conservative, however, given how effectively Microsoft is pushing ahead with its cloud strategy. The company has begun to show meaningful progress in its transformation from an old-school software seller focused on Windows and Office licenses -- still its biggest revenue and profit drivers -- to a cloud-based business that can compete with the likes of Amazon (AMZN) and Salesforce.com (CRM).

Source: The Street

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