Once you buy into some of the best dividend stocks, you can sit back and relax. You keep collecting dividend payments through thick and thin. For example, Microsoft’s (NASDAQ: MSFT) dividend history is long, and it has rewarded shareholders with higher dividends. Let’s check out the business and the last 10 years of Microsoft’s dividend history.
Business Overview and Highlights
Microsoft is a $813 billion business. The company operates out of Redmond, Washington and it employs 131,000 people. Microsoft pulled in $110 billion in revenue last year, which works out to $842,000 per employee.
The company is technology-focused and holds a better credit rating than the government (AAA). This allows Microsoft to issue cheap debt to grow the business and finance other initiatives.
Another area Microsoft has focused is ESG investing. Microsoft plans to lower carbon emissions by 75%. Microsoft has also committed $50 million to solve global environmental challenges. The company is planning for the long term in many ways.
Microsoft’s Dividend History Over 10 Years
The company paid investors $0.52 per share a decade ago. Over the last 10 years, the dividend has climbed to $1.68. That’s a 223% increase! You can see the annual changes below.
The compound annual growth is 12.4% over 10 years… but over the last year, the dividend climbed 7.7%. The slowdown in dividend growth isn’t a great sign. However, Microsoft still might be a good income investment. Let’s check out the yield.
Current Yield vs. 10-Year Average
Microsoft’s dividend history is long, and it’s one of the best dividend stocks around. This also makes the dividend yield a great indicator of value. A higher yield is generally better for buyers. Dividend sustainability is also key, so we’ll look at that soon.
The dividend yield comes in at 1.74%, which is below the 10-year average of 2.86%. The chart below shows the dividend yield over the last 10 years.
The lower yield shows that investors have bid up Microsoft’s market value. They might be expecting higher growth and payouts. But more often than not with consistent dividend payers, the dividend yield is mean-reverting with share price changes.
Improved Dividend Safety Check
Dividend investors look at payout ratio to find out whether a dividend is safe. To do this, they look at the dividend per share divided by the income per share – so a payout ratio of 60% would mean that for every $1 Microsoft earns, it pays investors $0.60.
Payout ratio is a good indicator of dividend safety… but accountants manipulate income numbers. They adjust for non-cash items such as goodwill. Instead, a better metric is free cash flow.
Here’s Microsoft’s payout ratio based on free cash flow over the last 10 years.
The ratio is fairly steady over the last 10 years, and the trend is up. The last reported year shows a payout ratio of 40.1%. This gives plenty of room for Microsoft’s board of directors to raise the dividend.
Closing Thoughts: Microsoft’s Dividend History and Safety
Microsoft’s dividend history is long, and the payout ratio shows it’s safe for now. However, it might not be the best time to invest. Investors have bid up shares, and the dividend yield is well below its 10-year average.