You’ve probably heard the expression, “You shouldn’t put all your eggs in one basket.”
This is sage advice when investing because you never know what can happen and you don’t want an unfortunate event to destroy the money you’ve worked hard for. A diverse portfolio of high-quality companies can appreciate over time but still protect you from one worthless egg spoiling things.
Start your morning smarter! Wake up with Breakfast news in your inbox every market day. Register for free »
But what if you could only hold one share?
Technology giant Microsoft(NASDAQ: MSFT) would be my first answer. Five reasons make a compelling case that any long-term investor should consider buying and holding Microsoft in their portfolio.
Diversification isn’t just for your portfolio; Companies that make money in many ways are also more reliable. Microsoft is a huge technology conglomerate that sells various products and services in the technology sector. It primarily operates three business segments including:
However, this only simplifies a sprawling business that touches many markets, including personal and enterprise software, computer operating systems, cloud computing, video games, artificial intelligence (AI), web search, social media and more. Outside of mobile phones, Microsoft is virtually everywhere technology is present.
Businesses evolve as the world around them changes. Microsoft has thrived for decades in the technology industry, a space where disruption through innovation is almost always a threat. How? The company has done an excellent job of creating value with its financial resources.
A company’s return on capital employed (ROIC) shows how efficiently it uses its financial resources to generate revenue. A high ROIC combined with sustained revenue growth is a formula for massive earnings growth and investment returns. Microsoft has grown and generated over $254 billion in annual revenue since 1989, while achieving an average ROIC of 28%. That’s why the stock has turned an investment of just $1,000 in its initial public offering (IPO) into more than $6.8 million today.
Every company eventually stumbles. A strong balance sheet can act as a safety net and help fill the gaps when revenues or profits temporarily disappear. Microsoft is one of only two publicly traded companies with a AAA credit rating, the highest of which Standard & Poor’s dish. The US government currently has an AA+ rating, which is honestly just below that.
But isn’t it remarkable that a company has a better credit rating than perhaps the most powerful country in the world? It’s hard to find better financial security than that.
Microsoft stock is known for its impressive price appreciation, but don’t forget its dividend history. The company has paid and increased its dividend for 22 years in a row, and at an annual average of 11% over the past ten years. The starting dividend yield won’t surprise you; it is only 0.7%. However, it all adds up. Microsoft’s dividend contributes nearly 40% to the stock’s lifetime investment returns.
Furthermore, the dividend is only about a quarter of Microsoft’s earnings estimates, leaving plenty of room for management to keep increasing that dividend in the coming years.
Microsoft generates annual revenues of more than $250 billion and has a market capitalization of $3 trillion. The company’s ability to continue growing at this scale is perhaps the most impressive aspect of its business. In the first quarter of fiscal 2025 ending September 30, 2024, the company experienced 16% year-over-year revenue growth. Microsoft’s three business units each grew by double digits, so this is momentum for the entire company.
AI could boost Microsoft’s growth in the near future. Microsoft is improving several parts of its business with AI technology, and the company’s massive investments in data centers to support its AI computing needs are driving business to its cloud platform, Azure. The world is becoming increasingly technological. Given Microsoft’s large shadow in the broader technology landscape, I wouldn’t be surprised to see the company grow well into the future.
Have you ever felt like you missed the boat on buying the most successful stocks? Then you would like to hear this.
On rare occasions, our expert team of analysts provides a “Double Down” Stocks recommendation for companies they think are about to pop. If you’re worried that you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
Amazon: If you had invested $1,000 when we doubled in 2010, you would have $22,050!*
Apple: If you had invested $1,000 when we doubled in 2008, you would have $41,999!*
Netflix: If you had invested $1,000 when we doubled in 2004, you would have $407,440!*
We’re currently issuing ‘Double Down’ warnings for three incredible companies, and another opportunity like this may not happen anytime soon.
See 3 “Double Down” Stocks »
*Stock Advisor returns November 4, 2024
Justin Pope has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Microsoft and S&P Global. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
If I could only buy and hold one stock, this would be it, originally published by The Motley Fool
