Chart of the Week: Microsoft Lifts Dividend, Announces US$60 Billion Share Buyback

September 17, 2021

When investors think of which “Big Tech” companies to buy in the US, Microsoft Corporation (NASDAQ: MSFT) isn’t always the first to come to mind.

Maybe that’s because iPhone giant Apple Inc (NASDAQ: AAPL) and Inc (NASDAQ: AMZN) have much sexier consumer-facing product offerings that we’re all familiar with.

Yet Microsoft has transformed itself from an “also-ran” tech company in the early 2010s to one of the most exciting growth stories in Big Tech.

That’s mainly down to Microsoft’s pivot to focus on cloud computing under the stewardship of its current CEO Satya Nadella.

Investors have been rewarded as Microsoft shares have delivered a total return of 468% over the past five years versus the S&P 500’s total return of 129% during the same period.

So, it was no surprise to see Microsoft’s share price rise on news earlier this week that the company is raising its dividend and announcing a US$60 billion share buyback.

Giving cash back to shareholders

Microsoft announced it would raise its fiscal year (FY) 2022 quarterly dividend per share (DPS) by 11% to US$0.62 from US$0.56 in FY 2021.

It also announced a fresh US$60 billion share buyback that follows on from a huge US$40 billion share buyback announced in September of 2019.

More importantly, though, for investors is the fact that Microsoft continues to deliver cash back to shareholders (see below).

This has come both in the form of dividends as well as share buybacks. Over the past six years – including the latest dividend hike – Microsoft has raised its DPS by a compound annual growth rate (CAGR) of 9.5%.

According to a recent Barron’s article, Microsoft is also the highest-yielding mega-cap stock out of the top nine most valuable US companies (by market cap).

Although Microsoft shares only yield 0.8%, the fact it pays a growing dividend is becoming more appreciated by investors given the amount of free cashflow it generates.

This is especially so when investors compare it to Amazon, Alphabet Inc (NASDAQ: GOOGL) and Facebook Inc (NASDAQ: FB) – none of which even pay a dividend.

Meanwhile, Apple is the only other “Big Tech” firm in the US that pays a dividend but its shares yield only 0.6%.

For investors looking for both growth and a fast-growing dividend, then Microsoft has continued to deliver the goods.

Microsoft share buybacks and dividends FY16-FY21: US$ in billions except for dividend per share

Microsoft dividend share buyback

Source: Microsoft investor relations page

Disclaimer: ProsperUs Head of Content Tim Phillips owns shares of Microsoft Corporation.

Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.

He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.

In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.

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