MSFT 081716 57.56 Yld 2.50 PE 27.38 MP 80
Returns Since April 23, 2010
MSFT - 105.88% MSFT with "Divi-X" - 123.57%
This week, I'll be featuring Microsoft Corporation (MSFT). When I was putting together the "Divi-X" System, I emphasized that I was not cherry-picking stock selections to glorify my system and make it seem that it was better than it really is. As a consequence, I used the 29 dividend paying stocks in the Dow Jones Industrial Average at the time, purchased all on the same day. There was no consideration as to timing, price, PE's, Betas, or any other metric someone would use to make a stock selection. The short-term result was an almost immediate indication that some of the Dow components I used were not purchased at the optimum time.
I'm not surprised that would be the case in a few of the Dow components, but none more so than Microsoft. Compiling this article, I was surprised to learn that when I initiated a position in Microsoft back on April 23, 2010 @ 30.96/share, it happened to be the highest price of the year. Almost immediately afterwards, Microsoft embarked on its journey of a 16%+ decline. From there, Microsoft's price would remain stagnant for over a year and a half, leaving us in the red for quite some time. It would take a full three years after the purchase date, in April of 2013, before any investor in Microsoft would have seen green for a meaningful period of time.
Microsoft Corporation is a technology company. The Company develops, licenses and supports a range of software products, services and devices. Its segments are Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. Its products include operating systems; cross-device productivity applications; server applications; business solution applications; desktop and server management tools; software development tools; video games, and training and certification of computer system integrators and developers. It also designs, manufactures, and sells devices, including personal computers, tablets, gaming and entertainment consoles, phones, other intelligent devices, and related accessories, that integrate with its cloud-based offerings. It offers an array of services, including cloud-based solutions that provide customers with software, services, platforms, and content, and it provides solution support and consulting services. It also delivers online advertising. (Source: Google Finance)
Since "Divi-X" Inception April 2010
The Leverage Projection Worksheet
When we initiated our position on April 23, 2010, Microsoft sold for the all time high for that year at $30.96 a share and paid a very nominal 1.68% dividend yield. Using a $10,000 investment and based on our 1.68% yield and a "Multiplier Pick" of 154, we were then able to pick up an extra $2,747.73 in shares for a total share count of 411.7485 shares; "Divi-X" accounting for only 88.75 of those shares.
Returns To Date
A few things to note about this chart:
- Microsoft's share price took an almost immediate 16.53% hit after reaching it's high of $30.96 a share for the year. There was an additional 4.72% loss attributed to "Divi-X." This loss was considerably low in relation to the 16.53% drop of the share price primarily because Microsoft paid such a low yield at the time.
- "Divi-X" did trail an 'All Cash' investment for over four full years, but not by much. And, which has often been the case, the deficit narrows and by the end of year five, "Divi-X" managed to pull ahead of an 'All Cash' investment by 2.72%.
- Microsoft's performance for the first four years was very unimpressive. It failed to even come close to the 'Expected Return' rate I laid out for it. That all changed, however, when "Divi-X" was the first to cross that threshold in July of 2014.
- It's also worth pointing out, that even though "Divi-X" trailed for the better part of three years, "Divi-X" redeemed itself by also being the first to cross, and exceed, the "double your investment" milestone in November of 2015 by $680.28; while 'All Cash' trailed "Divi-X" at the same time by $1,478.09. It would also be another eight months, in July of 2016 (last month), before your 'All Cash' investment would have reached "double your investment" status.
- Finally, as of Aug. 17, 2016, "Divi-X" leads 'All Cash' by 17.69%, or $1,769.19. That's a return of 64.39% on leveraged funds.
If you are reading this article and scratching your head, it's because you haven't learned our very simple system.
A few things to note about this chart:
- Not much to say about this chart. Next year, whether their is a dividend increase or not, "Divi-X" yield will surpass an 'All Cash' yield and continue to grow from there.
Running Leverage Rate
As noted earlier, our then yield at the time of purchase in April 2010 was only 1.68%. With that 1.68% yield, we were able to purchase an additional $2,747.73 of Microsoft, or another 88.75 shares of stock. Using our "Multiplier Pick" of 154 using the "All DIVs" option and with a margin rate of 7.75% and a "PmtPerc" of 1.25%, we ultimately wound up leveraging a modest 21.55% of our purchase.
Over the years, as a result of reduced principal and share price appreciation, here is how our 'Running Leverage Rate' has fared:
A few things to note about this chart:
- Because we used the "ALL DIVs" option, which is required whenever using a "Multiplier Pick" in excess of 100, very little of our principal was paid down in the beginning.
- Because Microsoft's share price took such a large hit so early after our purchase in April 2010, the decrease in share value increased our leverage amount to 25.86%, up from our initial 21.55%.
- Despite a stagnant share price early on, our loan balance and 'Running Leverage Rate' still managed to decrease significantly over the last few years, currently leaving us with a very pleasant 5.67% leverage rate.
Taking a New Position
First, our new 'Leverage Projection Worksheet:'
A few things are different since April 2010. Share price is much higher, yield is a little bit higher which has us opting for a lower "Multiplier Pick" (which is borderline, so a higher "Multiplier Pick" could be considered), and this new position would only have us levered at a somewhat cautious 16.68%. With our new $10,000 investment, our 16.68% leverage position would only afford us an additional 34.78 shares.
Next we'll take a look at the minimum milestones we would hope to achieve over the next few years.
Don't be discouraged if the expectations do not seem that impressive. You can always raise or lower that figure to your liking if you're using "The "Divi-X" System Workbook."
And finally, our dividend picture:
At first glance, not much to get excited about. The bars in purple take into account future dividend increases, but until the company actually raises the dividend, we do not know how conservative or aggressive our expectations are.
When I put the "Divi-X" System together, I chose the Dow components because I did not want to cherry-pick results and because almost everyone is familiar with some if not all of them. If I were investing for myself, personally, I would not have made this investment back in 2010. To me, buying a security at or near it's highs is a bit taboo. More often than not, it's a signal to me that most of the money has already been made. But despite that, Microsoft is currently outperforming the expectations we laid out for it way back in 2010, as well as outperforming an 'All Cash' investment; and as I always say, you can't complain about a stock that beats your expectations.
We're going to put this one back on the shelf and review it again next year. Till next time, many happy returns!
Authored by Lee Carroll Wentker
All screen captures are taken from 'The "Divi-X" System Workbook'
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