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Microsoft Corp (MSFT) stock has held up much better than its technology peers in the latest stock market volatility. Moreover, investors can expect a dividend hike in about 5 months, and short-put yields over the next month are high.

MSFT is up today at $386.82, although it's still well off its peak of $447.26 in January, but up from a recent trough price of $354.56 on April 8.

Moreover, since the end of March, before the Trump tariffs announcement on April 2, MSFT stock is up about 3.0% from $375.39. By contrast, the S&P 500 index has fallen about -5.55% since March 31.

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MSFT stock - last 3 months - Barchart

Dividends and MSFT Price Targets

This makes MSFT stock attractive to large investors, including value investors. Moreover, as Microsoft has now paid out 3 of 4 quarterly dividends, investors can expect a dividend hike announcement sometime in early September.

In addition, MSFT's present 0.858% dividend yield is well over its 5-year average yield of 0.82% according to Morningstar.

That implies that MSFT could rise further. For example, using its $3.32 annual dividend per share (DPS), it could be worth almost 5% more:

$3.32 DPS / 0.0082 avg yield = $404.88 target

$404.88 / $386.88 -1 = 0.0465 = +4.65% upside

The same type of valuation metric can be used with forward earnings multiples. For example, Morningstar reports that MSFT has had an average forward P/E multiple of 29.96x.

But right now the stock's forward P/E is well below that level. For example, analysts at Seeking Alpha project earnings per share (EPS) of $13.17 this year ending June 30 and $14.99 next year. 

As a result, using its average run rate EPS of $14.08 over the next 12 months (NTM), MSFT is worth at least 9% more :

$14.08 x 29.96 forward P/E = $421.84 target

  $421.84 / $386.88 -1 = 0.09 = +9.0%

Analysts Agree MSFT is Undervalued

For example, Yahoo! Finance reports that 59 analysts have an average price target of $499.16, +29% higher than today's price. Similarly, Barchart's survey shows a mean price target of $505.78.

In addition, AnaChart.com, which tracks recent analysts' recommendations, shows that 38 analysts have an average price target of $442.54 per share. That is 14.3% higher than today.

Moreover, the table below shows that the top 5 analysts covering MSFT, based on AnaChart's performance score, have an average price target of $413.00, or an upside of 6.7%.

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MSFT analysts - AnaChart.com - April 11, 2025

For example, Mark Murphy of JPMorgan, has been right 92.86% of the time with his price recommendation (Price Targets Met Ratio), and his Performance Score is 3.87, the highest of all analysts (taking into account the time it took for the stock to reach his price targets). His present price target is $465, which is about 20% higher than today's price.

That should give investors a good deal of confidence that MSFT is undervalued here.

Nevertheless, there is no knowing when the stock will reach these price targets. One way to play this is to sell short out-of-the-money (OTM) put options in nearby expiry periods.

Shorting OTM Puts

I discussed this in my last article on MSFT on March 14, “Microsoft Stock May Have Bottomed - Shorting Puts May Be a Good Play.” I discussed selling short the $375.00 put option strike price (3% out-of-the-money) for $7.05 for the April 25 expiration period. 

That provided the investor with an immediate 1.875% short-put yield (i.e., $7.05/$375.00 = 0.0188). Today, those puts are lower at $4.43. That still provides an investor an immediate yield of 1.18% (i.e., $4.43/$375.00).

Moreover, the May 16 expiry period, a little over a month from now, shows that $375.00 strike price puts have a midpoint premium of $13.48. That provides a short-seller a huge immediate yield play of 3.595% (i.e., $13.48 / $375.00 = 0.03595).

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MSFT puts expiring May 16 - Barchart - As of April 11, 2025

This is an excellent way to set a buy-in target price. For example, even if MSFT falls to $375.00 and the investor's account is assigned to buy 100 shares at $375.00, the breakeven price is much lower:

$375 - $13.48 (income already received shorting $375.00 put) = $361.52, or 6.67% below today's trading price

Investors should study the risks associated with cash-secured short-put plays like this. For example, there is no reason why MSFT couldn't fall below this breakeven, and the investor could end up with an unrealized capital loss position. One way to study these risks is Barchart's Learn tabs - Options Trading Risk.

The bottom line is that MSFT looks undervalued here, and one way to play this is to sell short cash-secured out-of-the-money (OTM) puts in nearby expiry periods.

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