Back in January, when Microsoft was selling for $26.50, with a dividend yield of 3.5%, I decided to take the plunge and buy 100 shares in my RRSP. I hadn’t bought shares in a company in the technology sector in years, so the 100 shares were to “test the waters”. I liked that Microsoft had very little debt, a low payout ratio, and generated incredible amounts of cash through its various business segments. There were also rumors of a new Xbox system coming out in 2013, which made the buy even more enticing.
Four months later, with recent news of a private equity firm investing in Microsoft, the price of shares at a 52-week high, and the dividend yield down to under 2.8%, I’m thinking of selling. My beliefs in Microsoft’s business model and future prospects haven’t actually changed, I just think the stock price is ahead of the company’s fundamentals. Having identified another technology company I’m interested in (Cisco), where I see more upside over the next couple years, and a higher dividend yield (about 3.3%), I’m having a hard time convincing myself not to sell my Microsoft shares.
As much as I like to think of myself as a ‘Buy and Hold Investor’, I definitely wouldn’t buy more shares in Microsoft at its current levels, which makes me ask myself why I’m holding on to it. When Mr. Market drives the price of a company higher than can be reasonably justified, it might be time to take profits.