key points
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Microsoft has established itself as a leader in AI.
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The company’s business is built to withstand challenging times.
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It also offers something many retirees love: a strong dividend program.
Retirees prefer relatively stable, reliable investments that also provide consistent income. This 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 is one AI stock that is most attractive to retirees. he is none other than Microsoft (NASDAQ:MSFT). Here’s why.
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growth and income become one
First, let’s discuss several reasons why Microsoft is a leading AI company. technical leader Offers a host of AI services through its Azure platform, including tools that enable corporations to build custom AI tools without the expensive investments required to train AI models. It also helps that Microsoft already has a large distribution channel. Microsoft has been an integral part of the daily activities of millions of businesses through its operating systems (OS) and productivity platforms for decades. It’s not a huge leap for the company to rely on these existing relationships to advance its AI agenda.
Then there is Microsoft’s integration of AI tools into its OS through Copilot, as well as its partnership with OpenAI, which remains the market leader. However, in addition to its AI business, Microsoft has a large, installed base of customers that use its OS and productivity tools daily – as well as its cloud computing Services – provides it with a significant source of predictable revenue, much of it from enterprise contracts, resulting in recurring sales. That’s what makes Microsoft a better choice for retirees than some other AI leaders that rely on advertising or e-commerce, businesses that are meaningfully impacted during recessions.
Microsoft will not survive the economic downturn completely unaffected. Hardly any company can do this. But the tech giant should be doing better than most of its similarly sized tech peers. Then there’s Microsoft’s excellent dividend program. Despite the company’s low yield of around 1% (the S&P 500Microsoft regularly increases its payout, averaging 1.2%, by 153% over the past decade.
Microsoft is unlikely to cut its dividend given the amount of free cash flow it generated over the last 12-month period – $77.4 billion – and its extremely conservative cash payout ratio of 33.6%. With all this being said, how should retired investors approach Microsoft stock? Despite its strength, the tech giant can be volatile, as shown by the significant decline in market value over the past six months. However, given its strong underlying business and growth prospects driven by cloud computing and AI, it should eventually bounce back while keeping its dividend program intact. Retirees looking for some exposure to the AI industry can allocate a (very) small portion of their portfolio to Microsoft.
Should you buy stock in Microsoft now?
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Prosper Junior Bikini No positions in any of the stocks mentioned. The Motley Fool has positions in Microsoft and recommends it. The Motley Fool has one Disclosure Policy.
