Microsoft’s Dividend: A Prudent Prospect

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It has long been observed that those engaged in the most innovative of pursuits – the purveyors of technology, in particular – are rarely inclined to generous distributions of wealth. Indeed, the very notion of a regular income seems to hold little appeal for those whose fortunes are built upon the expectation of perpetual growth. Nvidia, a company of considerable influence, offers a dividend so modest as to scarcely warrant mention, while Meta Platforms, though belatedly acknowledging the claims of its shareholders, does so with a degree of parsimony that might be considered…unconventional. Alphabet, following suit, has offered a token payment, sufficient, perhaps, to avoid outright censure. Tesla and Amazon, it is understood, remain entirely uncommitted to such practices.

One must, of course, acknowledge that the accumulation of capital through share repurchase is a perfectly respectable endeavor, and frequently a more advantageous one, from a tax perspective. Yet, for those of a more settled disposition – those who prefer a predictable return upon their investment – such maneuvers offer little comfort. For it is the steady, reliable income that allows for prudent planning and the maintenance of a comfortable independence.

Research suggests – and it is a point well worth remembering – that a considerable portion of the wealth generated by the market over the past sixty years has stemmed not from the mere appreciation of share values, but from the consistent reinvestment of dividends. Those who possess the patience to nurture such holdings are, therefore, likely to find themselves in a more secure position than those who chase fleeting gains.

The companies now commonly referred to as the Magnificent Seven have, without question, led the recent advance in market values, fuelled by the excitement surrounding artificial intelligence. However, for those who seek both participation in this wave of innovation and a dependable stream of income, the field of contenders narrows considerably. Apple and Microsoft present themselves as the most suitable candidates, though a discerning eye will quickly reveal a significant disparity between their prospects.

Why Microsoft is Likely to Lead the Way

Those stocks which have consistently increased their payouts for a quarter of a century or more – the so-called Dividend Champions – are, by their very nature, businesses of considerable fortitude. They have weathered financial storms, endured periods of economic uncertainty, and emerged, not merely intact, but strengthened. They have proven their ability to adapt and to prosper, even in the most challenging of circumstances. Yet, despite their long-established presence and considerable influence, none of the Magnificent Seven has yet achieved this distinction.

Microsoft, however, appears well-positioned to remedy this oversight. Since 2010, the company has steadily increased its dividend, demonstrating a commitment to returning value to its shareholders. Indeed, the payout has increased sixfold in that time, and now amounts to a substantial sum each quarter. Apple, by contrast, resumed paying a dividend only in 2012, after a hiatus of seventeen years. While the increase since then has been respectable, it pales in comparison to Microsoft’s performance.

This two-year head start is not the sole reason for optimism. Microsoft’s payout ratio – the proportion of earnings devoted to dividends – is a remarkably conservative 23.6%. This suggests that the dividend is not only sustainable but has ample room for further growth, particularly given the company’s robust earnings growth of 12.5% last quarter.

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One might argue that Apple’s higher payout ratio is a point in its favor. However, in this instance, Microsoft’s more restrained approach reflects a preference for rewarding shareholders through income, rather than through the repurchase of shares. While Apple has devoted a considerable sum to buybacks – a sum exceeding Microsoft’s by a significant margin – a steady income stream offers a more predictable and, to some, a more satisfying return.

A Prudent Reserve for Future Growth

While the Magnificent Seven appear secure in their current position, ten years is a considerable expanse of time in the world of commerce. Moreover, a lack of clear dividend guidance from management introduces a degree of uncertainty.

However, there is another compelling reason to believe that Microsoft’s dividend will continue to grow. The company’s share buyback program, which is already well underway, could free up a substantial amount of capital, potentially enough to retire 100 million shares. This would further enhance the security of the dividend, as the company would save a considerable sum each quarter and have more resources available for future increases.

Currently, Microsoft’s dividend yield is a modest 0.76%. This may not appear particularly generous, but it is important to remember that the dividend has grown sixfold since 2010, while the share price has increased more than twentyfold. With the seriousness and speed with which management is raising payouts, this yield has the potential to become a force to be reckoned with in the years to come.

For those investors who seek both income and exposure to the transformative power of artificial intelligence, Microsoft presents a most agreeable proposition.

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2026-01-16 18:02