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Is Microsoft A Good Dividend Stock?

May 03, 2022 9:30 AM ETMicrosoft Corporation (MSFT)37 Comments


  • Microsoft stock yields only 0.9%.
  • It is still an amazing dividend stock as the strong forward growth rates more than compensate for the low starting yield.
  • The company is still growing at robust rates, powered by its cloud division.
  • The company maintains a cash-rich balance sheet and has generously rewarded shareholders with dividends and share repurchases.
  • I rate the stock a buy as a lower-risk option in the tech sector.
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Volkswagen And Microsoft CEOs Hold "Fireside Chat"

Sean Gallup/Getty Images News

Microsoft (NASDAQ:MSFT) is the rare tech stock that can deliver robust growth while generating huge profit margins and rewarding shareholders. While the dividend yield might not look that enticing at less than 1%, the stock may nonetheless

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This article was written by

Julian Lin profile picture

Julian Lin is a financial analyst. He finds undervalued companies with secular growth that appreciate over time. His approach is to look for companies with strong balance sheets and management teams in sectors with long growth runways.

Julian is the leader of the investing group Best Of Breed Growth Stocks where he only shares positions in stocks which have a large probability of delivering large alpha relative to the S&P 500. He also combines growth-oriented principles with strict valuation hurdles to add an additional layer to the conventional margin of safety. Features include: exclusive access to Julian's highest conviction picks, full stock research reports, real-time trade alerts, macro market analysis, individual industry reports, a filtered watchlist, and community chat with access to Julian 24/7. Learn more.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of FB, GOOGL either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I am long all holdings of the Best of Breed portfolio

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Comments (37)

Thats an ugly chart for a company actually growing revenue faster.
Buy your position in MSFT and keep it for 10 years
it's better then money at the bank.
MSFT dividend seems trivial, in contrast to many other names. It might be a factor for some, but I believe the majority of MSFT investors are buying into its high growth prospect.
Willow Street Investments profile picture
@Josh.Gotcha I bought MSFT in 1996...I get $8,000 a year I dividends and am in it for the dividends at this point. Looking forward to 10% increases into the future.
@Willow Street Investments I see. Well, in that case, you'd be way better off if you swtiched to ATT instead. But would you do it?
Willow Street Investments profile picture
@Josh.Gotcha Would not be better off with T.
Advanced_Tech profile picture
Microsoft is a growth stock not a dividned stock.
if you want to buy a stock for the income and dividends
you should buy something with a much higher yield.
Canadian Banks are a good example
for a great dividend stock.
Steve Rasher profile picture
@Julian Lin Thanks for the article. Let's face it one of the main reasons the yield is relatively low is that the stock appreciation over the last few years has far outpaced the healthy growth of the dividend. I bought a number of years ago and have a basis under $30, and at that time the yield was attractive at around 3%. Although the current dividend is 3 times that of when I bought, the current yield is 1/3 of the yield when I bought. So yes, one can buy for dividend growth as well as over all growth and stock appreciation. Steve
Julian Lin profile picture
@Steve Rasher Yes, absolutely. If one is willing to sell a little then the overall yield will be quite generous.
Steve Rasher profile picture
@Julian Lin Actually, although I rarely sell because of valuation when the investment thesis is still intact, I did trim 20% of my position at $329 because I had some compelling opportunities to redeploy the proceeds in stocks that would significantly increase my dividend cash flow and leave some cash as well. Yes, my timing was pretty good in hindsight, but I consider it more luck and intuition rather than some deep analytical skills. Steve
You have to be kidding me. No one buys msft for div growth. Get a new job
@stevewin Whoa, someone who knows every investor, and what their motivation is for buying every stock!

Sadly, you must have forgotten to interview me before writing your comment, because dividend growth is a requirement on a stock before I consider it for purchase. Therefore, because MSFT has dividend growth, it passed my screens and I bought it. Wasn't the sole reason for sure, but I would not have bought it if it failed that screen.
TaiPan profile picture

Great answer. But you forgot to include a brief mention of the value of civility, for the benefit of @stevewin.
@stevewin I actually buy this for the dividend. But I also appreciate the sector and even though 1% sucks in dgi. It still goes up 10% ish a year.
There is no doubt that MSFT is a great stock. But it is paying a very tiny amount as a dividend. For me living on dividend income and needing at least 6-7% , it is not appealing. While dividend happens clockwise, capital appreciation is unpredictable. So there is potential that one will have to sell the stock at an inopportune time to fund monthly living cost. A company paying a small dividend may indicate lack of confidence in itself.
Julian Lin profile picture
@Kenyatta You state that capital appreciation is unpredictable, but is it really? Food for thought: many investors like to live entirely off dividends. I view this to be very risky in the current environment given the low yields. Yet if one were to instead just go 100% in the S&P 500 and sell 4% of the starting amount (note that detail) every year, then they'd arguably have a consistently growing amount of money.

The key point to understand is that even in a 50% decline, you aren't selling everything.
ChuckXX profile picture
I think this is the first time I've ever seen anyone come out with EPS estimates out to 2031. I think we all know that is a moonshot towards a dart board. Thank You for the nice article though.
Julian Lin profile picture
@ChuckXX It's all about trying to see what kind of returns to expect using reasonable assumptions.
.9 dividend is nothing when inflation is at 12 to 14%
Julian Lin profile picture
@rgj There's more to stocks than just the dividend...
@Julian Lin Not when they’re going down
MSFT is a strong growth stock but not a good dividend paying company.
@MLian After owning them for 6.5 years or so, I'm getting around 5% of my initial investment back per year, and I expect that to continue growing at a very nice clip for a very long time.

It's one of those dividend stocks that adds a lot of growth to your portfolio, and should pay out a decent amount after some time as well. To me, I put it in a similar category as V, MA, AMT, BAM, etc. -- good overall growth, also happen to have very good dividend growth, I've been long those names for 5-7 years already, and have another 15 years until retirement, so by that time I should be getting a pretty healthy chunk of money from them too.
@Chalmus0 As of today, MSFT dividend is pity. Better of course than FB or Google or AMZN who pays no dividends at all. FYI, I own MSFT since $25.
Matthew Brown profile picture
Good article.

One nit pick: "Dividend investors should focus on underlying earnings for a better understanding of true dividend safety because dividends are paid out of earnings."

Dividends are not paid from earnings, which include all sorts of non-cash metrics. They are paid from cashflow.
Julian Lin profile picture
@Matthew Brown We're arguing semantics. I of course am referring to true "owner earnings," and not accounting-inflated earnings. The "intuitive" definition of earnings, you could say.
TaiPan profile picture
@Julian Lin @Matthew Brown

Semantics are words, and clarity is important. If you (Julian) have to explain what you meant by “earnings”, (e.g. not from earnings per se but from effective ‘shareholder earnings’ -- which sounds like modified cash flow), then it may be time to consider using different terminology.
Julian Lin profile picture
@TaiPan Fair, but in this case it's reasonable to assume by "earnings" one means the intuitive sense of the word, and not "GAAP earnings with a ton of non-cash accounting adjustments."
Bought them in 2016, and plan to hold them for....well, ideally forever. I've been working in IT for coming up on 3 decades now, and Microsoft has never been in a more dominant position IMO. That, and they were one of the first ones to go through the antitrust wringer, so they hardly ever get brought up in the conversations about "big bad tech companies that we need to do something about"

Long, staying long, and would say that anyone with a reasonably long timeframe could hardly ever go wrong by adding MSFT.
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