Key points
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Microsoft has established itself as a leader in AI.
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The company’s activities are aimed at dealing with challenging times.
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It also offers something many retirees love: a strong dividend program.
Retirees tend to prioritize relatively stable, reliable investments that also provide consistent income. That hardly describes the top artificial intelligence (AI) companies, many of which are growth-oriented tech stocks that are quite volatile and whose dividend programs (even if they have one) aren’t particularly impressive. That said, there’s one AI stock that stands out above the rest as the most attractive to retirees. That is none other than Microsoft (NASDAQ: MSFT). Here’s why.
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Growth and income combined
Let’s first discuss some of the reasons why Microsoft is a leading AI company. The technology leader offers a host of AI services through its Azure platform, including tools that allow companies to build custom AI tools without the expensive investments required to train AI models from scratch. It also helps that Microsoft already has a large distribution channel. Microsoft has been an integral part of the daily operations of millions of businesses for decades through its operating systems (OS) and productivity platforms. It’s not a huge leap for the company to rely on these existing relationships to advance its AI agenda.
Then there’s Microsoft’s integration of AI tools into its operating system through Copilot, as well as its partnership with OpenAI, which remains the market leader. In addition to its AI business, Microsoft’s large, established customer base that uses its operating system and productivity tools every day – as well as its cloud computing services – provides the company with a significant source of predictable revenue, much of which comes from enterprise contracts, resulting in recurring sales. This is exactly what makes Microsoft a better choice for retirees than some other AI leaders that rely on advertising or e-commerce, companies that suffer significantly from recessions.
Microsoft will not escape an economic downturn completely unscathed. Almost no company can achieve that. But the tech giant should navigate better than most of its tech peers. Then there’s Microsoft’s excellent dividend program. Despite the company’s low return of around 1% (de S&P500‘s average is 1.2%), Microsoft regularly increases its payouts, having done so by 153% over the past decade.
Microsoft is unlikely to cut its dividend given the amount of free cash flow it generates ($77.4 billion over the last twelve months) and its very conservative payout ratio of 33.6%. That said, how should retired investors approach Microsoft stock? Despite its strengths, the tech giant can be volatile, as evidenced by its significant decline in market value over the past six months. However, given the robust underlying business and growth prospects, powered by cloud computing and AI, the company should eventually bounce back while keeping the dividend program intact. Retirees looking for some exposure to the AI industry can allocate a (very) small portion of their portfolios to Microsoft.
Should You Buy Microsoft Stock Now?
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Prosper Junior Bakiny has no position in any of the shares mentioned. The Motley Fool holds positions in and recommends Microsoft. The Motley Fool has a disclosure policy.
