Top Picks 2016: Microsoft

01/14/2016 7:00 am EST


Stephen Quickel

Editor, US Investment Report

My Top Pick for conservative growth investing in 2016 is a mega-tech growth company that's actively engineering a truly awesome transition to revive its faded fortunes, asserts Stephen Quickel, editor of US Investment Report.

No longer dependent on its old standby Windows and Office software, the new Microsoft (MSFT) is expanding an array of products accessed by consumers and companies’ eager to cut costs by storing data on those off-site servers called the cloud.    

Co-founder Bill Gates and the Microsoft board tapped virtually unknown Satya Nadella, 48, to succeed Steve Ballmer.

In so doing, he helped pump new life into a lumbering corporate behemoth with revenues of $100 billion.

Nadella and his recharged team—to everyone's amazement—are transforming Microsoft back into a cutting-edge growth company and one that pays a 2.5 percent dividend yield to boot.

Nadella has made believers of Wall Street doubters by rapidly introducing new devices in conjunction with its well-received new Windows 10 operating system.

These include phones, tablets, and game consoles, plus cloud servers and a new subscription-based Office software package.

The company has reportedly been hard-pressed to keep up with demand for its new X-Box game consoles.

This astonishing rejuvenation became strikingly apparent last fall when MSFT reported first-quarter growth for its June 2016 fiscal year that blew away analyst expectations of Ballmer-style results.

Nadella, far from grappling with a dreadnought dead in the water, has steered bulky MSFT like an America's Cup racing yacht turning on a dime.

The results speak for themselves. To get fiscal 2016 underway he reported 13% higher earnings than Wall Street projected, not just a few pennies per share more.

For the full June 30 fiscal year, current estimates call for $2.75 per share, up from $2.46 in fiscal 2015. For fiscal 2017, which begins next July, analysts today foresee $3.12 per share.

And then there is that 2.5% dividend yield, with a payout percentage which has grown by 17% over the last five years. On paper, at least, MSFT's 13% earnings growth plus its dividend payout comes to a total return of 15.5%.

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