1 Superb Tech Dividend Stock to Buy and Hold Forever

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Investors who are interested in earning dividends from stocks might initially consider sectors like utilities, healthcare, or real estate investment trusts (REITs). However, it’s important not to overlook the technology industry entirely; it could be more suitable for those with a growth-focused approach. Surprisingly, tech companies can also make excellent dividend-paying firms. For instance, consider Microsoft (MSFT 1.24%). Although the company may not immediately spring to mind as a “dividend” choice for many investors, Microsoft is actually an excellent income stock. Let’s explore why this is the case.

Microsoft’s rock-solid underlying business

For many years, Microsoft has been a trailblazer in the tech sector, consistently delivering impressive long-term returns that have catapulted its market value to more than $3 trillion. This success can be attributed to its innovative prowess and reliable financial performances. The company’s dominance across numerous industries, such as computer operating systems, cloud computing, and artificial intelligence (AI), has been instrumental in fueling robust growth in recent times. In the third quarter of fiscal year 2025, ending on March 31, Microsoft reported a revenue of $70.1 billion and net income of $25.8 billion – figures that increased by 13% and 18%, respectively, compared to the same period last year.

Once more, Microsoft’s cloud-service division, Azure, demonstrated exceptional performance. Compared to the same time last year, Azure’s earnings skyrocketed by an impressive 33%.

Microsoft has been making significant strides against its long-term rival in the field of cloud computing, specifically Amazon. It’s expected that they will engage in a lengthy competition as there is still much undeveloped territory in both cloud services and artificial intelligence. In a recent statement, Microsoft’s CEO Satya Nadella expressed, “Cloud and AI are fundamental building blocks for businesses to increase productivity, decrease expenses, and boost growth.

Over time, we can expect increased interest in these industries, given their early stages as stated by Amazon CEO Andy Jassy. Microsoft’s competitive advantage, stemming from its powerful brand and customer switching costs, will likely contribute to its long-term success. Yet, its greatest asset could be its internal focus on innovation.

Over the last few decades, Microsoft has made use of major technological advancements and reaped the benefits. Artificial Intelligence (AI) and cloud computing are recent examples. Looking ahead, it’s likely that another technology trend will dominate Wall Street within the next decade. While there’s no certainty that Microsoft will always be at the forefront of any new market, its knack for innovation and substantial financial resources – generating $69.4 billion in free cash flow over the past year – should provide enough viable growth opportunities to maintain a steady stream of income and profits in the long term.

Microsoft’s foundational strength is unwavering. The organization boasts an exceptional credit rating, outranking that of the U.S. federal government. Given these factors, Microsoft presents itself as a secure, long-term financial prospect, without even factoring in the potential for dividends.

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Plenty of room for dividend hikes

As an ardent income investor, I can attest that Microsoft’s robust business operations are a true gem. Steady returns might seem insignificant unless they originate from a financially sound entity capable of maintaining them and even boosting regular dividends. That’s where Microsoft shines, demonstrating its growth potential over the past decade by increasing its dividend an impressive 167.7%. Yet, there’s still plenty of room for expansion as evidenced by its conservative 29.4% cash payout ratio.

Some might contend that Microsoft’s payout ratio is overly cautious. It’s possible that the company could implement more progressive dividend increases without substantially reducing the funds it intends to invest in the business for growth. Whether this is accurate or not, one point appears evident: Microsoft has ample potential to escalate its dividends further. As such, investors should not overly focus on its 0.7% forward yield, which is actually lower than the S&P 500’s modest average of 1.3%.

Is there any reason not to consider purchasing shares in Microsoft? Some may argue against it due to valuation concerns, as the stock is currently trading at 33.4 times forward earnings, which is higher than the S&P 500’s average of 22.3 and the information technology industry’s 29.2. However, Microsoft’s leadership in two rapidly expanding markets justifies a premium, and its forward price-to-earnings ratio seems reasonable when considering its growth potential. Another potential concern might be disruptions to Microsoft’s business if economic instability occurs, possibly due to Trump’s trade policies.

While Microsoft might face some hurdles, its resilience over several decades and successful navigation through previous downturns suggests it’s capable of weathering the current situation. Long-term investors may find it beneficial to remain invested, as the stock has a history of delivering impressive returns moving forward.

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2025-07-17 18:49