Huge and Still Growing

Microsoft (Nasdaq: MSFT) — with a market value recently near $2 trillion — is, arguably, one of the safest stocks on the market. It has just about every attractive trait a single stock can possess. Its business is diversified: in this case, across operating systems (Windows), software (Office 365), cloud infrastructure (Azure), social media (LinkedIn) and video gaming (Xbox). Every one of these lines is a growth business, and most generate recurring subscription revenue. Moreover, each of these businesses is highly profitable and requires relatively little capital investment to grow.

In the quarter ending Dec. 31, 2020, Microsoft’s revenue accelerated by 17% year over year, while operating income grew by an even more impressive 29%. It also has a terrific balance sheet, with $132 billion in cash against just $60.5 billion in debt. That leaves plenty of cushion against a big downturn in the market — and if one arrives, Microsoft could buy up its own stock at a discount, or make opportunistic acquisitions.

Then there’s the dividend: Microsoft’s stock recently yielded less than 1%, but that payout has been increased by an annual average of 9% over the past five years, and is likely to keep rising over time. (Teresa Kersten, an employee of Microsoft subsidiary LinkedIn, is a member of The Motley Fool’s board of directors. The Motley Fool owns shares of and has recommended Microsoft.)