Microsoft (MSFT) just made headlines with a 22% dividend bump this week, up to 28 cents a share quarterly. And while some investors are considering this further proof that the only way to make money on MSFT stock is to rely on dividends, one big-name hedge fund manager says he’s betting on the company long-term for more than just income.
In fact, ValueAct CEO Jeffrey Ubben said that Microsoft is a better buy than even mobile darling Apple (AAPL).
ValueAct has staked out a $2 billion position in Microsoft and is widely thought of as one of the insider groups that helped push out longtime CEO Steve Ballmer. Ubben, speaking Tuesday at the Value Investing Congress in New York, claims Microsoft has a business model that makes it a better company than Apple for the long-term, since MSFT is “in the plumbing” of all major corporations and has enterprise contracts that will continue to pay off for years to come.
That’s a far cry from a business like Apple, which depends on the whims of consumers, Ubben said.
Obviously this comment was made to grab headlines at a big-time investor event. And with activist investors recently urging both tech stocks to unlock their cash stockpile, it’s interesting that this venue was used the same week that MSFT pledged a bigger dividend and another $40 billion in stock buybacks.
Maybe it’s a move to pressure Apple into doing the same?
The bottom line is that Ubben’s argument, on the surface, has some merit. Apple faces tough competition from Google (GOOG) Android smartphones and is in large part relying on its existing brand power and an upgrade cycle to bridge the gap until the next big thing. Consumer tastes are fickle and technology trends uncertain, so its not without reason that Wall Street is reluctant to value Apple stock at an earnings multiple much higher than 11.
But can’t you just swap Apple for Microsoft in that previous paragraph? Doesn’t MSFT trade for a depressed valuation thanks to negativity about its second act, and isn’t Microsoft overly reliant on existing relationships and an upgrade cycle?
And hasn’t Apple really pushed Microsoft to raise its dividend and buybacks thanks to its recent moves, including a $100 billion effort last year to return capital to shareholders?
I’m not sure which stock is “better.” A close look at the pair of tech stocks reveals to me that Apple and Microsoft actually aren’t all that different at all.
Related Reading on MSFT and AAPL
- Of course, Apple and Microsoft are both head and shoulders above BlackBerry (BBRY), which is dying a slow death. (The Slant)
- On the latest MSFT dividend increase. (InvestorPlace.com)
- More on Ubben’s comments about Microsoft and Apple stock. (CNN Money)
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.