Microsoft Stock (NASDAQ:MSFT)
Microsoft stock announced its annual dividend increase. Microsoft has increased its dividend payment to shareholders for 13 years in a row, marking a new quarterly dividend of 68 cents per share this year.
One might reasonably wonder why the specific month matters if dividends are compounded annually and grow. We give two explanations:
- the company’s dependability and
- the income-seeking investors’ ability to make plans based on that dependability. One might think that a 10% dividend growth rate would silence even the critics of dividend growth stocks who point to inflation as the culprit.
We wrote this piece in 2014, and since then, Microsoft Corporation (NASDAQ:MSFT) and the world have undergone significant transformations. But the fundamentals of dividend growth investing have not. This essay follows the same format as the original and contrasts the current state of affairs with that of 2008 for a better understanding. Start here.
Yield Increase: Microsoft stock’s new annual dividend of $2.72 per share represents an increase of 1.12%. The dividend increase in 2014 pushed that number up to 2.66%, which is a significant drop. Despite this, there’s no reward for guessing why the stock price has increased from $47 to $242. Microsoft stock price had been confined to a limited range for over a decade before breaking out due to its Azure supremacy; even dividend investors couldn’t be upset by that development.
And here’s the catch: the payout ratio. Although Microsoft stock has added 8 additional years of dividend growth since the 2014 article, the company’s current future payout is just 26%, down from 46% in 2014. When you consider the share above price gain, it’s easy to see that Microsoft’s profits and dividend growth prospects are in good shape.
Microsoft stock had a dividend growth rate (DGR) of 10%-25% over five years. However, the range over the last five years has shrunk significantly to between 9.52% and 10.87%. What gives us reason to believe that this will happen? A more mature and trustworthy dividend-paying corporation is reflected in this. To draw an analogy, runners value what are known as “tight splits” for each mile, where the range of outcomes is less, and the long-term success is more specific.
Extrapolation: We have estimated a dividend increase of 10%/yr for the following 5 years and 7%/yr for years 6 to 10. Since there is plenty of wiggle space in the payout ratio and double-digit profit growth is anticipated, this sounds very cautious. If the firm cannot find a better use for its profits and cash, it is likely to raise the payout ratio, which may seem ridiculously high at first glance. Together, rising profits and dividends suggest a healthy overall return for shareholders.
Thoughts About the Future
Having a stock’s price near the bottom of its 52-week range is not, in and of itself, a buy signal. But if the Microsoft Corporation’s (NASDAQ:MSFT) underlying health is stable, it might make for an exciting narrative. Almost no one would dare to suggest that Microsoft stock, the firm, won’t be there shortly. The Microsoft stock, which had been overvalued along with the rest of the market, has fallen from $350 to $240, putting it at a forward multiple of 24. If you think that’s high, consider that consumer staples giants Procter & Gamble (NYSE:PG) and Coca-Cola (NYSE:KO) trade at 23 and 24, respectively. Stocks like Microsoft will attract the first buyers when inflation, the awful war, COVID, and other macro factors stabilize (they don’t even need to improve).
It’s understandable if you’re tired of hearing about how quickly the Cloud is expanding. You may be thinking that it must end eventually. Who knows, maybe you’re correct. However, that moment is still far off since quarterly, and annual comparisons reveal that Microsoft Azure continues to demonstrate sequential growth. Microsoft Corporation (NASDAQ:MSFT) has reported that it anticipates further double-digit growth in the next quarters. Rereading our 2014 piece on Microsoft’s Cloud potential is both amusing and satisfying: “The Cloud and Enterprise Mobility Suite are receiving double the attention they once did from the firm. Even Apple (NASDAQ:AAPL) supporters must acknowledge that the Cortana vs. Siri advertisement is humorous and to the point, even though Microsoft’s phone hasn’t transformed the world. Once customers understand your message, sales of your items should increase. This Seeking Alpha article suggests that Windows tablets may have a bright future. The long and the short of it is that there are indicators that Microsoft stock may be more than a dividend stock.”
The profits per share are projected to reach $20 in five years, assuming a 15% compound annual growth rate in earnings. There would be an annual dividend of $5.29 per share paid to shareholders even if the payout ratio remained at its current level of 26%. From the current $2.72 per share, that’s roughly a 100% increase. The results weren’t too bad.
The feeling of envy has touched the lives of everyone on the planet at some time. It’s human nature to assume that everyone else is better off than we are, whether monetarily, personally, physically, or aesthetically. Our research has led us to conclude that consistency, capital growth, dividends, and a solid balance sheet are the four most important aspects of a successful investment portfolio. Microsoft stock is one of the few corporations that can really be said to have it all. Due to the “SWAN” (sleep well at night) quality, it provides to our portfolio, we intend to maintain our investment in Mr. Softie despite the current market downturn.
Featured Image- Megapixl @ Topdeq