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Investment Analysis Clubs / The BMW Method


Subject:  Re: Thoughts on stocks Date:  5/19/2012  1:04 AM
Author:  kelbon Number:  40583 of 42384

The market will never again reward MSFT with a high P/E so any gains you make in the stock will have to come from increased earnings and dividends.

In spite of what you might think of a company's products, flatfooted execs., and culture sometimes the smart thing is to hold your nose and jump in.

If history is any guide, even if the market were never to assign a higher P/E to Microsoft's stock, it would likely be a much better than average investment.

The stock's earning yield based on trailing earnings and a share price of $29 is 9%. The current dividend yield is 2.7%. Add the two and you get an initial (theoretical) return of 11.7%.

Based on history your initial 9% return (earning's yield) is likely to compound annually at 10%-12%. Your dividend, which now yields 2.7% is likely to compound annually at, maybe, 17% for at least the next few years.

All this without the market valuing the stock a jot higher than it does today.

(For entertainment purposes only. This is not a stock recommendation. Do your own due diligence!)

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