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Microsoft An Owner's Manual for Investors
As an owner of Microsoft's stock you're entitled to a share of its earnings.
$12.3 Billion Microsoft's 12-Month Earnings $1.49 NOT TO SCALE obviously Microsoft's Earnings Per Share
If you divide Microsoft's share price by its earnings per share (EPS), you get its price-to-earnings ratio.
Share Price $54.35 P/E = = Ratio EPS $1.49 This is how much it costs to buy $1 of Microsoft's annual earnings. = 36.39
A higher P/E ratio implies a lower potential return.
What Is a Typical Stock's P/E Ratio? P/E Ratio 1,000 Most companies have P/E ratios between 12 and 30. 100 10 1 100 Biggest S&P Companies
You can also use Microsoft's P/E ratio to derive its earnings yield.
Microsoft's Earnings = Yield 1 P/E Ratio 1 = = 2.7% 36.39
This helps you compare a stock to other types of investments, such as bonds and real estate.
Average Rates of Return 6.63% 4.33% 2.21% 2.45% 10-Year Treasuries 5-Year CDs 2.90% 10-Year AAA Corp. Bonds 2.75% S&P 500 Earnings Yield Class A Office Building Cap Rate Microsoft's Earnings Yield
Of course, if you own one share of Microsoft stock, you don't get a check each year for its EPS.
You receive quarterly dividends instead, which typically account for only a portion of total earnings.
Microsoft's Payout Ratio The payout ratio is the percentage of earnings paid as dividends. Anywhere from 30% to 70% is normal. 82%
2.65% Microsoft's Dividend Yield
Microsoft's Dividend = Yield Dividend per Share Share Price $1.44 = = $54.35 2.65%
You can then use this to compare stocks based on their incomegenerating potential.
Representative Dividend Yields 3.70% 3.32% 2.75% 2.65% 1.67% 0.71% Microsoft Exxon Wal-Mart Wells Fargo Comcast Visa
Microsoft also buys back its own stock.
This reduces its share count, which increases the ownership interest of each remaining share.
$15.7 Billion Microsoft's Buybacks (TTM) Change in Microsoft's Share Count (TTM) -3.1%
So, what does the future hold for Microsoft's stock?
If the Past Is Prologue... Total return since Jan. 1, 2005 200% Microsoft 159% 150% 100% S&P 500 116% 50% 0% 2005 -50% 2007 2009 2011 2013 Today
While it's impossible to predict the future with precision, analysts expect Microsoft's earnings to grow.
Divining Microsoft's Future Average Earnings per Share Estimate Among Wall Street Analysts $3.01 $2.70 Current Fiscal Year Next Fiscal Year
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