Friday, January 11, 2013

Nay for Intel, Yay for Microsoft


After spending a couple weeks taking an in depth look at Intel, I decided against buying their stock. Even though they have an economic moat, healthy liquidity, and could easily increase their tempting 4.2% dividend yield given their 38% payout ratio, I got scared off by the flat to decreasing revenue projections from analysts. I’m also not sure how Intel’s management will be able to adapt to the decrease in personal computer sales as consumers move toward tablets and smart-phones. I haven’t totally written off Intel as an investment, it’s just moved down my list of potentials.

Instead of Intel, my first buy for 2013 was Microsoft. In Microsoft, I get a 3.5% dividend yield with room to grow given their 37% payout ratio and history of almost doubling their dividend amount in the last 5 years. There’s also the fact that Microsoft’s capable management is sitting on a $66B pile of cash and securities, and has very little debt. In my view, this enviable liquidity position should allow them to respond to competitive threats relating to their operating system not being used on many tablets or smart phones. It was also encouraging to see that analysts are expecting mid-single level revenue growth for the next several years, which should enable management to continue to increase their dividends. Lastly, I managed to buy Microsoft on a little dip January 10th, where they closed in on a 52-week low.

The Microsoft position allows me to diversify into a new sector (technology) while increasing the US content of my portfolio. This assists in accomplishing two of my goals for 2013. Now if only Microsoft’s stock price stays low until April, when I should find out how much I can contribute to my self-directed RRSP in 2013. 

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