Microsoft – decent yield and huge R&D spending
Microsoft Corporation (NASDAQ:MSFT) still seems to be cheap at its current levels. It is trading at around $35 per share with a total market cap of $291 billion. The market values Microsoft Corporation (NASDAQ:MSFT) at around 11.35 times its forward earnings. Microsoft has been a good stock for income investors. In the past ten years, it has kept increasing its dividend payments, from $0.08 per share in 2003 to $0.76 per share in 2012. Interestingly, the dividend payout ratio was quite reasonable at around 38% in 2012. At the current trading price, investors could get a decent dividend yield of 2.60%.
What I like about Microsoft Corporation (NASDAQ:MSFT) is its high R&D investment. Since 2003, its R&D expenses have increased from $4.67 billion to more than $9.80 billion. In 2012, R&D spending accounted for 13.3% of the total revenue. Apple Inc. (NASDAQ:AAPL) has also been spending an increasing amount of money in R&D, from $471 million to nearly $3.4 billion during the same period. However, because of much higher revenue growth, Apple Inc. (NASDAQ:AAPL)’s R&D expenses as a percentage of total revenue have been quite low. In 2012, R&D spending represented only 2.16% of Apple Inc. (NASDAQ:AAPL)’s revenue.
Focus on Microsoft Business Division
Many people are worried about the fast declining global PC industry and its impact on Microsoft Corporation (NASDAQ:MSFT). Interestingly, the biggest revenue contributor of Microsoft is not the Windows Division, which is positively correlated to the global PC market growth, instead, it is the Microsoft Business Division.
In the nine months ended March 2013, the Microsoft Corporation (NASDAQ:MSFT) Business Division has generated $18.3 billion in revenue while the Windows Division ranked second with $14.3 billion in sales. What makes me excited is that the Microsoft Business Division was also the biggest profit generator, with more than $12.1 billion in profit, 54% higher than $7.85 billion in profit from the Windows Division. Indeed, the Microsoft Business Division should be the segment that Microsoft should really focus on.
C.H. Robinson with increasing dividends
C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) is one of the biggest third-party logistic providers with freight transportation services to 42,000 customers around the world. Transportation was its biggest revenue contributor, with $9.68 billion in 2012 revenue. Nearly 84% of its total transportation revenue was derived from truck transportation, while ocean transportation contributed only $84.9 million in revenue.
The company could also fit well in the income portfolios of investors. In the past 10 years, it has increased its dividend from $0.18 per share in 2003 to $1.34 per share in 2012. The dividend payout ratio has been quite reasonable, fluctuating in the range of 27.1% to 45.5%. In 2012, it paid 36.5% of its earnings in dividends.
The market values the company at around 18.14 times its forward earnings. The dividend yield is 2.40%. Interestingly, investment guru Donald Yacktman is also bullish on C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW). In the first quarter of 2013, he accumulated around 1.75 million shares of the company, accounting for nearly 1% of his total portfolio.
My Foolish take
Microsoft Corporation (NASDAQ:MSFT) and C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) would fit well in the income portfolios because of their consistently increasing dividend payments. They also have economies of scale with global leading positions in their respective industries.
The article 2 Stocks With Wide Moats for Income Investors originally appeared on Fool.com and is written by Anh Hoang.
Anh HOANG owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Microsoft. Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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