2. Microsoft (MSFT - Get Report)
Microsoft's Windows software powers 90% of the world's computers. In addition to a dominant brand, Microsoft boasts a top-notch balance sheet and performance metrics any CEO would envy. Five-year growth in earnings has averaged 18% a year, and Microsoft's return on equity of 45% is twice the S&P's 26%.
Microsoft's financials are solid. Revenue rose 12% in fiscal year 2011 (ended June 30) to $70 billion, compared with $62 billion in the prior year. EPS improved 28% year-over-year to $2.69. Like many large companies during this uncertain environment, Microsoft is also sitting on a lot of cash. But the numbers are staggering: Microsoft has $50 billion in cash on hand, generates $27 billion in annual cash flow and has only $13 billion in debt. This company isn't going anywhere any time soon.
Microsoft began paying dividends eight years ago, having raised them six times since then. A 25% increase in September put the dividend at an annual rate of 80 cents. The payout ratio of 23% leaves plenty of room for dividend growth. Microsoft shares trade at a P/E ratio of 10, roughly half its five-year high of 21.