Microsoft Dividend Stock Analysis
Let’s dip our toe back into the cash rich technology sector today. And look at a company that impacts most of our lives on a regular basis. That being the prolific tech company named Microsoft.
So let’s do a dividend deep dive of this well known business. Certainly I will have some thoughts on the Microsoft dividend.
But before we get started, please note that this post includes an affiliate link. If you sign up with one of my preferred financial resources, I may receive a small sales commission. These commissions help offset the time and cost of running Dividends Diversify.
And now, back to Microsoft!
Founded in 1975, Microsoft operates in over 190 countries. They develop, license, and support a wide range of software products, services and devices. Some of these product and service offerings include:
- Computer operating systems
- Systems management tools
- Personal computers
- Gaming and entertainment consoles
- Cloud-based software, services, platforms and content
- Support and consulting services
MICROSOFT DIVIDEND YIELD
Microsoft pays an annual forward dividend of $1.84 cents per share. This is a 1.7% Microsoft dividend yield at the recent price of $108 per share.
COMPOUND ANNUAL DIVIDEND GROWTH RATE
|1 Year||3 Years||5 Years||7 Years|
Microsoft started paying a regular dividend in 2003. And they have increased it every year since then for an annual dividend increase streak of 16 years. Most noteworthy, dividend growth has been nice and steady in recent years. And recently, the Microsoft dividend was increased another 9.5%.
Revenue growth has been substantial. In contrast to another tech giant, IBM, Microsoft has been more successful pushing into new products and services. This has been critical as the product life cycle of its popular Windows operating system matured over the past decade.
MICROSOFT DIVIDEND, EARNINGS AND PAYOUT RATIO
After adjusting for the one time negative impact of the recently enacted tax code in 2018 financial results, Microsoft’s earnings have grown right along with revenue. And the dividend payout ratio stands at a very comfortable 43% in recent years.
A lower dividend payout ratio is generally better. It shows the company has ample room to raise the dividend in coming years. Or, withstand an earnings drop with out having to reduce the dividend.
Knowing a company’s credit rating is important. Furthermore, it can make a big difference between companies that struggle and those who hold there own during a recession. Finally, a corporation’s credit rating is similar to how your personal credit score works. Most noteworthy, higher ratings mean lower risk to those who lend the company money. Also higher ratings mean lenders will likely get their loans paid back.
Certainly we are not lenders here at Dividends Diversify, we are dividend stock investors. However, it never hurts to check out a company’s credit worthiness.
Microsoft really shines in this area. It is 1 of only 2 US based companies that still have the highest possible credit rating. This is represented by a AAA score. As indicated in the chart below, that is investment grade and minimal credit risk.
The other US based company with AAA credit is Johnson & Johnson.
VALUATION & CONCLUSION
Microsoft’s stock price has been on a tear. It has doubled over the past 2 years and trades near its 52 week high. The combination of a rising stock price along with rising earnings has left the price to earnings ratio bouncing around 25 times over the past few years.
The stock isn’t cheap. But most quality, profitable companies like Microsoft trade at a pretty high valuation these days. A lower price to earnings ratio typically represents a better value for the investor.
SUMMARY & WRAP UP
I have been very fortunate with Microsoft having accumulated my position from 2011 to 2013. This was at the end of a decade long stagnation in the stock price dating back to the burst of the technology bubble in the early 2000’s. On the strength of these gains it has jumped to my second largest individual stock holding.
Because of the size of my position, low dividend yield and relatively high stock value, I won’t be adding more money here anytime soon. I wouldn’t mind selling part of the holding to take some profits, but I hate paying capital gains taxes. So I plan to hold for the long term and collect my dividends. If I was building a new dividend stock portfolio, I would look to build a position in this high quality company over time and on any price weakness.
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OTHER RELATED ARTICLES
I hope you enjoyed this article. If so, here are a couple others that you may find interesting:
- The model portfolios where Microsoft resides: Core and Explore and The Dividend Deluxe
- The process I use for dividend stock analysis: Dividend Deep Dive
- Another tech company dividend stock analysis: The Apple of Your Dividend Eye
- A good piece about cash rich tech companies: Tech, Where Cash is King
WHAT ARE YOUR COMMENTS?
Do you own Microsoft? What tech products do you use the most? How about Apple? Certainly, they are very popular. Leave a comment and let us all know!
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