In a testament to its robust business performance and confidence in its cash flow, Microsoft (NASDAQ:MSFT) announced a 10% increase in its quarterly dividend to $0.75. This move continues the software giant's steady trend of dividend growth, despite maintaining a modest dividend yield.
The increased dividend, which is set to be paid out on December 14 to shareholders on record as of November 16, marks Microsoft's 19th consecutive year of dividend increases. The hike brings the company's total annualized payout to $3, tripling the amount paid to shareholders just over a decade ago.
Microsoft's consistent dividend growth has been particularly notable in recent years. Five years ago, the company's annual dividend payments stood at $1.84. Since then, Microsoft's dividends have grown at an average annual rate of about 10.3%.
The boost in the quarterly payment adds to an already appealing return for Microsoft shares this year, which have seen a surge of 37%. Investors have praised the tech giant's strategic use of artificial intelligence (AI) in its products and its robust earnings growth, with earnings per share increasing by 20% year-over-year in the most recent quarter.
Microsoft's strong performance in cloud computing has also attracted investors' attention. Revenue from Azure and other cloud services recorded a year-over-year increase of 26%.
The outlook for future growth remains promising. Several factors suggest a high probability of continued dividend growth, including Microsoft's history of consistent dividend hikes, a strong balance sheet, and solid earnings momentum. The company's low payout ratio, which sees only 27% of its earnings paid out as dividends over the trailing 12-month period, further indicates potential for future growth.
Analysts remain optimistic about Microsoft's earnings prospects, forecasting an average annual growth rate of about 14% over the next five years. Despite the caution required in interpreting these predictions, they lend weight to the case for further dividend growth.
Even though the new quarterly dividend results in a dividend yield of just 0.9%, based on current stock trading levels, the potential for dividend growth positions Microsoft as an attractive investment for those seeking a reliable and growing source of dividend income.
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