The board of Microsoft Corporation (NASDAQ:MSFT) has announced that it will be paying its dividend of $0.68 on the 8th of December, an increased payment from last year’s comparable dividend. Based on this payment, the dividend yield for the company will be 1.2%, which is fairly typical for the industry.
See our latest analysis for Microsoft
Microsoft’s Dividend Is Well Covered By Earnings
We aren’t too impressed by dividend yields unless they can be sustained over time. However, Microsoft’s earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.
Looking forward, earnings per share is forecast to rise by 43.2% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 20% by next year, which is in a pretty sustainable range.
Microsoft Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. Since 2012, the annual payment back then was $0.80, compared to the most recent full-year payment of $2.72. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.
The Dividend Looks Likely To Grow
The company’s investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Microsoft has grown earnings per share at 24% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.
We Really Like Microsoft’s Dividend
Overall, a dividend increase is always good, and we think that Microsoft is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we’ve identified 1 warning sign for Microsoft that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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