Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. In the past 10 years Microsoft Corporation (NASDAQ:MSFT) has returned an average of 2.00% per year to investors in the form of dividend payouts. Should it have a place in your portfolio? Let’s take a look at Microsoft in more detail. See our latest analysis for Microsoft
5 questions I ask before picking a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is it the top 25% annual dividend yield payer?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has it increased its dividend per share amount over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Will it be able to continue to payout at the current rate in the future?
How does Microsoft fare?
The current trailing twelve-month payout ratio for MSFT is 130.95%, which means that the dividend is not well-covered by its earnings. However, going forward, analysts expect MSFT’s payout to fall into a more sustainable range of 38.51% of its earnings, which leads to a dividend yield of around 1.87%. In addition to this, EPS should increase to $2.99, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment. If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. MSFT has increased its DPS from $0.44 to $1.68 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. This is an impressive feat, which makes MSFT a true dividend rockstar. Compared to its peers, Microsoft has a yield of 1.75%, which is high for Software stocks but still below the market’s top dividend payers.
Keeping in mind the dividend characteristics above, Microsoft is definitely worth considering for investors looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. I’ve put together three key aspects you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for MSFT’s future growth? Take a look at our free research report of analyst consensus for MSFT’s outlook.
- Valuation: What is MSFT worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether MSFT is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.