Important news for shareholders and potential investors in Microsoft Corporation (NASDAQ:MSFT): The dividend payment of $0.42 per share will be distributed into shareholder on 14 June 2018, and the stock will begin trading ex-dividend at an earlier date, 16 May 2018. Investors looking for higher income-generating stocks to add to their portfolio should keep reading, as I take a deeper dive into Microsoft’s latest financial data to analyse its dividend attributes. View our latest analysis for Microsoft
How I analyze a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Is their annual yield among the top 25% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has the amount of dividend per share grown over the past?
- Does earnings amply cover its dividend payments?
- Will it have the ability to keep paying its dividends going forward?
Does Microsoft pass our checks?
The company currently pays out 110.77% of its earnings as a dividend, according to its trailing twelve-month data, 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 42.88% of its earnings, which leads to a dividend yield of 1.85%. Furthermore, EPS should increase to $3.56, 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. In the case of MSFT it 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. Relative to peers, Microsoft generates a yield of 1.72%, which is high for Software stocks but still below the market’s top dividend payers.Next Steps:
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 urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three relevant factors you should further research:
- 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.
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