The DividendRank formula at Dividend Channel ranks a coverage universe of thousands of dividend stocks, according to a proprietary formula designed to identify those stocks that combine two important characteristics: strong fundamentals and a valuation that looks inexpensive. Microsoft presently has an above-average rank, in the top 50% of the coverage universe, which suggests it is among the top most “interesting” ideas that merit further research by investors.
But what makes Microsoft Corp. an even more interesting and timely stock to watch is that, in trading Thursday, shares of MSFT entered into oversold territory, changing hands as low as $477.57 per share. We define oversold territory using the Relative Strength Index, or RSI, which is a technical analysis indicator used to measure momentum on a scale of 0 to 100. A stock is considered to be oversold when its RSI reading falls below 30.
In Microsoft’s case, the RSI reading has dropped to 28.6. By comparison, the universe of dividend stocks tracked by Dividend Channel has an average RSI of 44. A falling stock price — all else being equal — creates a better opportunity for dividend investors to capture a higher yield. Indeed, MSFT’s recent annualized dividend of 3.64/share, paid quarterly, works out to an annual yield of 0.75% based on the recent share price of $487.12.
A bullish investor could view MSFT’s 28.6 RSI reading today as a sign that the recent heavy selling is in the process of exhausting itself, and begin looking for entry-point opportunities on the buy side. Among the fundamental data points dividend investors should review to decide whether they are bullish on Microsoft is its dividend history. In general, dividends are not always predictable, but reviewing the history chart below can help gauge whether the most recent dividend is likely to continue.