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The tech giant, Microsoft (NASDAQ:MSFT) has a market capitalization of over $264 billion. For years, Microsoft has remained a highly illustrious tech stock, best recognized for its Windows operating systems.

Microsoft started to pay a quarterly dividend in 2004 with a special dividend of $3 per share and a quarterly dividend of $0.08 per share. Since then, the dividend has grown to $0.20 per share quarterly. Today, this is just a 2.54% yield, and I believe there is significant room for expansion in both the dividend and stock value.

Dividend History:

The company started its quarterly dividend paying policy with a $0.08 per share for the fiscal fourth-quarter of 2004 and maintained it until the first-quarter of 2006. The first dividend hike was sighted in the fiscal second-quarter of 2006 when the company increased its dividend from $0.01 to $0.09 per share.

The second dividend increase was after just two quarters in the first quarter of 2007 and again in 2008, increasing the dividend to $0.11 per share.

The biggest dividend hike was found in the first quarter of 2011 when the company added $0.04 to the dividend, reaching $0.20 per share. This was also maintained for the second quarter of 2011.

What Is Favorable With Microsoft?

At present, the dividend payout is just about 30% of earnings per share. If Microsoft maintains this payout, investors can look forward to a dividend of $0.90 in 2013, which would be closer to a 3% payout at the existing stock price. I believe the investment opportunities of Microsoft are strong when you compare the alternative of a competitor such as Apple (NASDAQ:AAPL).

Microsoft can provide investors with a highly attractive stock value currently around $31.50 per share which is far more affordable than Apples $524 per share. This will allow investors to own close to 16 shares of stock compared to a single stock of Apple. This surplus of stock quantity will also allow investors to benefit from Microsoft's dividend yield of 2.54%, which is far superior to Apple, which offers no dividend.

To further bolster Microsoft's value, I expect a rise in stock price will occur after the launch of Windows 8. Microsoft is not just creating another operating system for computers. This operating system is going to be more focused towards mobile gadgets like tablets and smartphones.

I recognize it is hard to get excited for one more version of Windows, when they typically need a service pack soon after launch. However, Windows 7 has been quite strong from the beginning and I look ahead to Windows 8.

Microsoft will acquire tablet market share, as Hewlett-Packard (NYSE:HPQ) is currently planning a tablet with the latest software on it, while other firms are not far behind.

Chief Financial Officer Opinion:

Microsoft CFO Peter Klein, at the Goldman Sachs technology conference in San Francisco, was asked about Microsoft's view on capital distribution and about changes to the dividend.

He stated that in terms of giving cash back to stockholders, it's absolutely been the case over the course during the previous year or two, they have turned more towards dividends than repurchases than they traditionally have, in large part because of feedback they have received from the investment community.

He added that they believe it's been pretty well received cumulatively over the previous two years, they have increased their dividend more than 50%. So they aim and are quick to respond to what they are hearing from investors and reimbursing cash to shareholders.

On the question about what causes them to raise a dividend, Klein commented that obviously, a company looks at its operating income expansion and its payout, and that's kind of one major thing that a firm looks at. And, in the history, they have tended to watch that and to operate in step with that. A company looks at its cash, where it is, whether it's out of the country, or it's in the US. It also looks at an entire number of factors.

Buy Recommendation On Microsoft:

Microsoft has appreciated roughly 22% since the beginning of the year, however many other blue chips are doing the same, like Google Inc (NASDAQ:GOOG) and International Business Machines Corporation (NYSE:IBM). Microsoft is exchanging hands in a range which it has for the past two and a half years. I think Microsoft has the aptitude to demonstrate a stock price increase as well as dividend hike.

The stock is currently trading close to its 52-week high of $31.50.The genuine question is whether Microsoft will be priced as an expansion company once more. This may be a huge stretch. Microsoft is so big that every new initiative or product introduction can have an incremental impact on sales and earnings. Microsoft has turned out to be a large-cap defensive stock that pays an ever-growing dividend.

I think that Microsoft will never halt its innovation or expansion. The insight of Microsoft in the market is a bit incorrect. Furthermore, the firm is in a healthy position financially, with an ever-growing dividend history. Analysts rate the firm as a Buy or Hold with a median target price of $34, which offers an upside of 10% from its existing price. I think Microsoft is a good value stock and I suggest it to most investors, especially those looking for solid dividends. In 2012, given the business fundamentals I discussed (especially the company's cash on hand), I believe Microsoft will boost its dividend by around $.05 per share sometime over the next two quarters.

Source: Will Microsoft Boost Its Dividend In 2012?