Worth noting, Microsoft pays a healthy dividend. The dividend yield currently sits at around 2.4% (as shown in the following chart) which is above average for Microsoft and above average for an S&P 500 company, particularly one in the technology sector.
In essence, Microsoft Corporation (NASDAQ:MSFT) is a stable company with an above average dividend and the potential for more growth and share price appreciation.
New Administration Policies:
It is worth considering the potential policy changes (and their impact on Microsoft) that might come out of the Trump Administration following this past week’s “Tech Summit” (attended by Alphabet Inc (NASDAQ:GOOGL) CEO Larry Page, Tesla Motors Inc (NASDAQ:TSLA) and SpaceX CEO Elon Musk, Apple Inc. (NASDAQ:AAPL) CEO Tim Cook, Facebook Inc (NASDAQ:FB) COO Sheryl Sandberg, Microsoft CEO Satya Nadella, Cisco Systems, Inc. (NASDAQ:CSCO) CEO Chuck Robbins, International Business Machines Corp. (NYSE:IBM) CEO Ginni Rometty, Intel Corporation (NASDAQ:INTC) CEO Brian Krzanich, Oracle Corporation (NYSE:ORCL) CEO Safra Catz, and Amazon.com, Inc. (NASDAQ:AMZN) CEO Jeff Bezos, to name a few).
Specifically, we consider policies that may artificially create more US tech jobs, lower corporate tax rates, pressure interest rates higher, allow overseas cash repatriation, and utilize punative tariffs.
1. More US Jobs:
For starters, one of Trump’s biggest themes is US jobs creation. However, the types of jobs he’s talking about (middle class manufacturing jobs) aren’t going to help Microsoft, and his views on highly skilled international workers may actually harm Microsoft significantly. For example, Trump has been critical of H1B visas, claiming they take jobs away from Americans. In our view, H1B jobs help Microsoft attract the talent it needs to remain successful. For example…
“Microsoft is an outspoken opponent of the cap on H1B visas, which allow companies in the U.S. to employ certain foreign workers. Bill Gates claims the cap on H1B visas makes it difficult to hire employees for the company, stating “I’d certainly get rid of the H1B cap.” Critics of H1B visas argue that relaxing the limits would result in increased unemployment for U.S. citizens due to H1B workers working for lower salaries.”
Additionally, Trump may attempt to force more manufacturing jobs into the US, rather than allowing US companies to trade more freely with international partners (for example, Trump wants to see Apple’s iPhone manufactured in the US, despite daunting economical headwinds). Generally speaking, international trade can increase productivity and efficiency by allowing each partner to focus on what they’re best at, and then allowing trade so each partner can obtain what it needs. Policies restricting international trade could particularly impact Microsoft considering “as of June 30, 2016, Microsoft employed approximately 114,000 people on a full-time basis, 63,000 in the U.S. and 51,000 internationally; and also according to Microsoft “Our international operations provide a significant portion of our total revenue…”) (2016 Microsoft Annual Report). Overall, Trump may be able to create some new US jobs with his pro-growth agenda, but if he restricts free trade and HB1 visas he could significantly hurt Microsoft in particular.
2. Lowering Corporate Tax Rates:
With regards to lowering corporate tax rates (another one of Trump’s consistent themes), this is a no-brainer (in a good way) for US business, but it may help Microsoft less than some of its peers given its already relatively low effective tax rate as shown in the following chart.
