The advice of Microsoft Corporation (NASDAQ: MSFT) has announced that it will increase its dividend on December 9 to $ 0.62. This makes the dividend yield roughly the same as the industry average at 0.8%.

Microsoft’s dividend is well covered by earnings

We like to see a good dividend yield, but that only helps us if the payout can continue. Before making this announcement, Microsoft was easily making enough to cover the dividend. This means that most of his profits are kept to grow the business.

Over the next year, EPS is expected to increase 7.7%. Assuming the dividend continues on recent trends, we think the payout ratio could be 29% by next year, which is in a fairly sustainable range.

NasdaqGS: MSFT Historic dividend September 25, 2021

Microsoft has a solid track record

The company has been paying a dividend for a long time, and it’s fairly stable, which gives us confidence in the future dividend potential. Since 2011, the first annual payment was US $ 0.64, compared to the most recent annual payment of US $ 2.48. This works out to a compound annual growth rate (CAGR) of around 15% per year during that time. So, dividends have grown quite quickly, and what is even more impressive, they haven’t seen any noticeable decline during that time.

The dividend seems likely to increase

Investors in the company will be happy to receive dividends for some time. It is encouraging to see that Microsoft has increased its earnings per share by 26% per year over the past five years. Rapid earnings growth and a low payout ratio suggest that this company has indeed reinvested in its business. If this continues, this business could have a bright future.

We really like the Microsoft dividend

Overall, a rise in dividends is always good, and we think Microsoft is a solid income stock thanks to its track record and growing profits. Profits easily cover distributions and the company generates a lot of cash. Overall, this ticks a lot of the boxes that we look for when choosing an income stock.

Companies with a stable dividend policy are likely to benefit from greater investor interest than those with a more inconsistent approach. At the same time, there are other factors that our readers should be aware of before investing any capital in a stock. For example, we have chosen 2 warning signs for Microsoft that investors should be aware of before committing capital to this stock. We have also set up a list of global stocks with a solid dividend.

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