How to Invest in Microsoft Stock

Microsoft (MSFT 0.59%) had humble beginnings. Childhood friends Bill Gates and Paul Allen formed the company in 1975 to develop programming languages for personal computers. Microsoft would create the first operating system for IBM's (IBM -0.86%) first personal computer a few years later.

Since its humble beginnings, Microsoft has grown into one of the world's largest technology companies. The company organizes its operations into three segments:

1. Productivity and Business Processes: This business segment features Office commercial and consumer products and cloud services like its 365 Suite (i.e., OneDrive, Word, Outlook, Excel, and PowerPoint). It also includes its LinkedIn social media site.
2. Intelligent Cloud: This operating unit includes server products and cloud services revenue, including its Azure platform.
3. More Personal Computing: This business unit includes its Windows operating system, Xbox entertainment system, Bing search technology, and Surface product platform.

Microsoft's technology platform generates significant earnings and cash flow. That provides it with funds to invest in expanding its operations while returning cash to shareholders through dividends and share repurchases.

The company has made several notable investments to drive future growth in recent years. In 2022, it agreed to buy video game maker Activision (NASDAQ:ATVI) for $68.7 billion in cash to bolster its Xbox entertainment platform. While the deal had yet to close as of mid-2023 due to regulatory concerns, Microsoft was working to win approval for the acquisition. Meanwhile, in early 2023, it agreed also to make a multiyear, multibillion-dollar investment in artificial intelligence (AI) company OpenAI to implement its technology into the company's Office, Azure, and Bing platforms.

Here's a step-by-step guide on buying Microsoft shares and some factors to consider before investing in the technology stock.

How to buy

How to buy Microsoft stock

To buy shares of Microsoft, you must have a brokerage account. If you still need to open one, these are some of the best-rated brokers and trading platforms. Here's a step-by-step guide to buying Microsoft stock using the five-star-rated platform Fidelity.

Fidelity makes it easy to buy stocks. Its website offers a video tutorial and a step-by-step guide. Here's a screenshot of how to place a stock trade with Fidelity:

On this page, fill out all the relevant information, including:

• The number of shares you want to buy or the amount you want to invest to purchase fractional shares.
• The ticker symbol (MSFT for Microsoft).
• Whether you want to place a limit order or a market order. The Motley Fool recommends using a market order since it guarantees you buy shares immediately at the market price.

Once you complete the order page, click the "Place Order" button at the bottom and become a Microsoft shareholder.

Should I invest?

Should I invest in Microsoft?

Before you buy Microsoft shares, you need to determine whether the company's stock is a good investment. Here are some reasons why you might want to consider buying Microsoft stock:

• You want to own a small piece of one of the world's largest technology titans.
• You understand how Microsoft makes money.
• You want to own individual stocks.
• You've thoroughly researched Microsoft and plan to continue following the company.
• You think the company can continue growing its profits at an above-average pace.
• You want to invest in one of the financially strongest companies in the world.
• You think the Activision deal will win regulatory approval and help grow Microsoft's Xbox platform.
• You believe the company's investment in OpenAI will give it a competitive edge over rivals.
• You don't need a lot of dividend income right now but believe Microsoft will continue increasing its payout at a healthy pace in the years to come.
• You believe Microsoft can outperform the S&P 500 over the long term.
• You use Microsoft's products and want to invest in the company that makes them.
• You understand the risks of investing in Microsoft, including that its shares could lose value.

Potential Microsoft investors must also consider why they might not want to buy shares. Here are some factors to contemplate:

• You're concerned about AI and unsure if Microsoft's investment in OpenAI will create shareholder value.
• You don't like big tech companies and worry they're becoming too powerful.
• You're unsure if regulators will allow Microsoft to acquire Activision or if the deal will create value for shareholders if approved.
• You need a higher-yielding dividend than Microsoft currently offers.
• You're unsure whether Microsoft can beat the S&P 500 over the long term.
• You don't want to own shares in a company founded by Bill Gates.
• You don't like Microsoft's products.
• You're younger and want to invest in a company earlier in its growth cycle than the near half-century-old Microsoft.

Is Microsoft profitable?

Is Microsoft profitable?

Profit growth helps drive stock price appreciation over the longer term. It's an ideal area for beginning investors to focus on before buying shares of any company.

Microsoft is enormously profitable. The technology giant generated $198 billion of revenue in its 2022 fiscal year and $83 billion in operating income. The company has increased its earnings sharply over the years, helping drive strong stock price appreciation:

Microsoft's operating profit grew 19% in its 2022 fiscal year. Azure and other cloud services (40% revenue growth in its fiscal fourth quarter) and LinkedIn (26% revenue growth) were big growth drivers. Microsoft sees more growth ahead. The company expects revenue and operating income to increase double digits in its 2023 fiscal year.

Does Microsoft pay a dividend?

Does Microsoft pay a dividend?

Microsoft started paying a dividend in 2003. Although it doesn't have a high dividend yield compared to other stocks (Microsoft's yield was less than 1% in mid-2023 compared to around 1.5% for the S&P 500), Microsoft is among the biggest dividend payers in the country. It paid its shareholders $18 billion in dividends in 2022. The company has steadily increased its payout over the years, notching its 13th consecutive year of increasing the dividend in 2022.

ETF options

ETFs with exposure to Microsoft

Instead of actively buying shares of Microsoft directly, you can passively invest in the technology company through a fund holding its shares.

Microsoft is one of the largest traded companies by market capitalization. It's a widely held stock. Microsoft is in several stock market indexes, including the Dow Jones Industrial Average and S&P 500 Index. As a result, index funds and exchange-traded funds (ETFs) that benchmark their returns against those indexes hold Microsoft stock.

According to ETF.com, 490 ETFs held 665.1 million shares of Microsoft as of mid-2023. The ETFs with the most shares were:

As one of the largest companies in the world by market cap, Microsoft carries a meaningful portfolio weighting in the biggest ETFs. The Invesco QQQ Trust (NYSEMKT:QQQ) has the largest portfolio weighting to Microsoft among the biggest ETFs. That makes it a potential option for investors seeking to gain some exposure to Microsoft through a passive ETF investment.

Another relatively large ETF with an even greater portfolio weighting of Microsoft stock is the Technology Select Sector SPDR Fund (XLK 0.58%). Microsoft has a roughly 23% portfolio weighting in the fund. That makes it another possible way to gain exposure to Microsoft through a passive ETF investment.

Will Microsoft stock split?

Will Microsoft stock split?

As of mid-2023, Microsoft had yet to announce an upcoming stock split. However, the company has completed several stock splits over the years:

Microsoft had historically split its shares when they topped $100. However, the company has let its shares rise well past that level over the last two decades without a split (shares were over $300 in mid-2023). Although that makes it seem like Microsoft could split its stock at any time, the company might let shares continue to rise without enacting another split.

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The bottom line

The bottom line on investing in Microsoft stock

Microsoft is a technology titan. The company has developed many of the productivity products we use every day. It continues to invest in developing innovative products to drive profit growth, so it could continue to be a winning stock for long-term investors.

However, that doesn't mean Microsoft stock is for everyone. Each investor needs to carefully consider whether it belongs in their portfolio.

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