Microsoft: A Tech Heavyweight Transforms into a Dividend Growth Machine

Many investors regard Microsoft (Nasdaq: MSFT) as “old tech.” That sentiment is understandable, given that it went public in 1986, its products are ubiquitous, and its market cap is currently well over $2 trillion. How much future growth can there be? We believe that Microsoft remains a high-growth company and it is still a tech heavyweight.

Its recent financial results have been staggering: Revenue over the last five years has grown at a compound annual growth rate of 15%, and its earnings have grown at an annual rate in excess of 30%.

All that growth has led to opportunities for dividend growth investors. Since it first began paying a dividend in 2003, Microsoft has steadily paid and now raised its payout for 11 consecutive years. The company paid a total of over $16.5 billion in dividends for the fiscal year ending on June 30, 2021, making it the largest dividend payer globally.

     Source: FactSet, for fiscal years ending on June 30. Data from 2003 through 2021.

While its current yield of less than 1% may not sound all that impressive, the almost 20% compound annual growth rate of its dividend certainly has been. Had you purchased a share of MSFT at the end of 2003—when it paid a dividend of $0.08 per share—and held it until September of 2021, your yield on cost today would be over 13%. And that’s in addition to a cumulative price return of over 930%. *

On September 14, 2021, Microsoft announced a quarterly dividend increase to $0.62 per share, representing an increase of over 10% from the prior quarter. And the annual dividend has doubled since 2014. Perhaps the most exciting part of Microsoft’s dividend growth story is that it could just be getting started. The company’s most recent 27.8% dividend payout ratio is low. Microsoft is generating almost $7.50 per share in free cash flow. This cash-flow machine is potentially well positioned to deliver future dividend increases.

Holdings are subject to change.

Data source: FactSet, unless noted otherwise. As of 9/30/21.

* Source: Bloomberg. As of 9/30/21.

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Originally Posted on November 12, 2021 – Microsoft: A Tech Heavyweight Transforms into a Dividend Growth Machine

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As of 11/10/21, TDV holdings included 2.89% to Microsoft. Subject to change.

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