Microsoft (MSFT) is one of only two companies to hold the coveted AAA credit rating from Standard & Poor’s. The other is Johnson & Johnson (JNJ).
This stellar credit rating is a testament to the strength and stability of Microsoft’s business model. Microsoft has delivered incredible total returns over the years, and made Bill Gates (one of its founders) a billionaire many times over. He is the richest man in the world and you can see his holdings here.
With fifteen years of consecutive dividend increases, Microsoft is also a member of the Dividend Achievers – a group of companies with 10+ years of consecutive dividend increases.
To get a sense of how rare Microsoft’s AAA credit rating is, read the introduction of this article which discusses Johnson & Johnson’s creditworthiness.
To summarize, Microsoft’s AAA rating means that the company is considered more creditworthy than the federal government, all but 15 states, and all but 1 other company.
Think about that… Microsoft is seen as a better debtor than the U.S. Federal Government, which has the ability to tax domestic citizens. Clearly Microsoft is a remarkable company.
This post will discuss the many reasons why Microsoft holds a perfect credit score from S&P.
Microsoft Business Overview
Microsoft is a diversified technology company. Many of their products, including Windows and Microsoft Office, have become staples in the world of personal computing.
Microsoft’s business is split into three segments for reporting purposes, listed below.
Note that the segment revenues listed above do not add to 100% because of 8% expenses not assigned to any particular segment (instead labeled as Corporate and Other).
In order to determine why this company holds S&P’s highest credit rating, we will begin by investigating the company’s balance sheet.
