The Dow Jones Industrial Average (^DJI) tracks 30 blue-chip companies, meaning its constituents are stocks of the highest quality. The index is not governed by strict rules, but the selection committee prioritizes well-known companies with sterling reputations and histories of sustained growth.

Generally speaking, blue-chip companies produce consistent cash flows, and many divvy up a portion of their profits among shareholders. Indeed, 29 of the 30 companies in the Dow Jones currently pay dividends, and Salesforce (CRM) is the newest member of that group. The software giant declared its first-ever quarterly dividend in February; shareholders of record as of March 14 will receive $0.40 per share on April 11.

However, Salesforce may have another exciting announcement in the near future. This is pure speculation, but with its share price around $300, the company may decide to split its stock this year. Of course, whether that happens or not matters very little. Salesforce would be the same business in either scenario. But what does matter are the circumstances that made the stock split plausible.

Specifically, Salesforce last split its stock on April 18, 2013, and its share price has soared 625% since then, compounding at an annual rate of 19.8%. For context, Salesforce more than tripled the return of the Dow Jones during that period. That outperformance hints at a competitive advantage, and investors should strive to own such stocks.

Is Salesforce a buy right now?

Salesforce is the gold standard in CRM software
Salesforce provides customer relationship management (CRM) software. Its platform includes productivity applications for sales, marketing, service, and commerce teams, as well as tools for application development, workflow automation, and data analytics. Collectively, those CRM products help businesses build and expand customer relationships over time.

Salesforce has dominated the CRM software market for the last 10 years. It accounted for 22.1% of CRM spending through the first half of 2023, more than the next four companies combined, and that dominance was broad based.

To elaborate, Salesforce has a strong presence in several subcategories of CRM software, including multichannel marketing, digital commerce, customer service, and sales force automation. Additionally, peer-review-based research firm G2 ranked Salesforce as the best software seller in any product category in 2024, citing its strong foothold in multiple markets and its high customer satisfaction scores.

Salesforce reported solid fourth-quarter financial results, beating expectations on the top and bottom lines. Revenue increased 11% to $9.2 billion and non-GAAP net income increased 36% to $2.29 per diluted share. In the coming quarters, investors can expect similar momentum at a minimum, but growth could accelerate as Salesforce leans into artificial intelligence (AI) with two new products.

Salesforce has significant opportunities in Data Cloud and Einstein Copilot
Data Cloud unifies information from Salesforce applications and third-party platforms like Amazon Web Services and Snowflake. In doing so, it helps businesses build customer profiles that support personalized experiences in every interaction. Data Cloud revenue is not readily apparent in financial filings because it flows through other segments, but CEO Marc Benioff said it has become the fastest-growing product in Salesforce history.

Data Cloud revenue increased nearly 90% in the fourth quarter, approaching an annual run rate of $400 million. Investors can expect similar momentum in the coming quarters. Salesforce was recently recognized as the market leader in customer data platforms (CDP), and Benioff believes Data Cloud will “become the heart and soul” of its CRM suite because it adds value to every application.

Data Cloud also has another key selling point: It provides a foundation for generative AI. Specifically, it not only helps businesses fine-tune large language models from third parties like OpenAI, but also powers Einstein Copilot, the conversational AI assistant Salesforce launched in February. Einstein Copilot can answer questions, summarize information, surface predictive insights, and automate tasks across the CRM platform.

Data Cloud and Einstein Copilot represent significant monetization opportunities. Straits Research believes the CDP market will expand at 26% annually through 2032, and Bloomberg Intelligence expects the generative AI software market to grow at 58% annually during the same period.

Salesforce stock trades at a reasonable price relative to growth prospects
Looking ahead, Grand View Research expects CRM spending to climb at 14% annually through 2030. Meanwhile, Wall Street expects Salesforce to grow sales at 10% annually over the next five years, indicating that analysts anticipate market share losses. But that estimate leaves room for upside. Not only because Salesforce dominates the CRM software market, but also because the company has big opportunities with Data Cloud and Einstein Copilot.

That said, the current valuation of 8.6 times sales is tolerable even if the Wall Street consensus is correct. But that multiple could look cheap in hindsight if revenue grows more quickly. Investors that like those odds should consider buying a small position in this newly minted Dow Jones dividend stock today.

— Trevor Jennewine

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Source: The Motley Fool