Dividend Increase | Microsoft Corporation (MSFT)

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Microsoft for another dividend increase!
There's an old Chinese proverb that says "the best time to plant a tree was 20 years ago, the next best time is now".  The reason for this is that it takes time for a tree to grow and prosper and for you to start reaping its benefits.  Dividend growth investing is much the same way.  It takes consistent saving and investing as well as time and patience to let the power of dividend growth take hold.

That's why one of my favorite things is when one of the companies I own decides to pay out more in dividends.  You mean I get a pay raise just for owning a small piece of a company?  Not going and doing R&D for new products or technology.  Not selling any products.  Not managing any employees or inventory.  Not making sales calls.  All I had to do was have the foresight to invest some of my savings in excellent companies.  

On September 18th the Board of Directors at Microsoft Corporation (MSFT) approved an increase to the quarterly dividend payment.  The dividend was increased from $0.46 up to $0.51 per share.  That's an excellent 10.9% increase.  Microsoft is a Dividend Contender with 17 consecutive years of dividend increases.  Shares currently yield 1.47% based on the new annualized payout.

The newly increased dividend will be payable on December 12th to shareholders of record as of November 21st.

Since I own 41.15 shares of Microsoft in my FI Portfolio, this raise increased my forward 12-month dividends by $8.23.  This is the 7th dividend increase I've received from Microsoft since initiating a position in May 2012.  So far Microsoft's dividend payout has increased 122% since I purchased shares.

A full screen version of this chart can be found here.

Microsoft's dividend growth has been absolutely fantastic with double digit annual raises the norm although there have been a few years below 10%.

Of the 12 rolling 5-year periods of Microsoft's dividend growth streak, annualized dividend growth has ranged from 10.5% to 26.6%.  The average annual dividend growth has come in at 15.4% with a median of 14.5%.

Of the 7 rolling 10-year periods, annualized dividend growth has ranged from 13.8% to 21.8% with an average of 15.6% and a median of 14.8%.

The 1-, 3-, 5- and 10-year rolling dividend growth rates since 2003 can be found in the following chart.  

A full screen version of this chart can be found here.
*Dividend growth rates are based off calendar year payouts

For dividend yield theory I consider the fair value range to be the forward dividend yield +/- 10% compared to the 5 year moving average, the under/over value area to be to between 10%-20% deviation from the average and significant over/under value are greater than a 20% deviation from the average.

A full screen version of this chart can be found here.

Microsoft's 5-year moving average dividend yield is 2.25%.  In order for Microsoft's shares to offer that yield based on the increased dividend the share price would need to be around $91 or roughly 35% lower than current levels.

Microsoft looks expensive based on traditional multiples as well.  Based on TTM data, the EV/EBIT ratio is 23.5x with a EV/EBITDA of 18.5x.  The EV/FCF ratio is 26.4x.  Using the more commonly used P/E multiples still has shares trading at 26.4x FY 2020's, the current year, estimates and 23.3x FY 2021's estimates.

Although given Microsoft's hefty growth expectations of 11% revenue growth and 14%+ earnings growth the valuation might not be as bad as it appears.  I've definitely seen companies with similar growth profiles that are trading at more expensive valuations.

Wrap Up

This raise increased my forward dividends by $8.23 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my portfolio's current yield of 2.92% this raise is like I invested an extra $281 in capital.  Except that I didn't!  One of the companies I own just decided to send more cash my way.  

That's how you can eventually reach the crossover point where your dividends received exceed your expenses.  That's DIVIDEND GROWTH INVESTING AT WORK!  The beauty of the dividend growth investing strategy is that you build up your dividends through fresh capital investment as well dividend increases from the companies you own.

Thus far in 2019 I've received 38 raises from 33 of the 54 companies in my FI Portfolio.  Combined the dividend increases have boosted my forward 12-month dividends by $263.74.

My FI Portfolio's forward-12 month dividends climbed to $7,448.47.  Including my FolioFirst portfolio's forward dividends of $100.12 brings my total taxable accounts dividends to $7,548.59.  My Roth IRA's forward 12-month dividends increased to $616.78.  My Rollover IRA's forward dividends remain at $2,200.28.  Across all accounts I can expect to receive $10,365.65 in dividends over the next year.

I've also started compiling dividend data on many of the companies that I own or would like to own.  Microsoft's can be found here which includes the dividend history (as far back as I can find without spending hours hunting it down), rolling dividend growth rates and dividend yield theory.  To see other companies that I've already gathered the data on you can check out the Dividend Companies page.  Check it out and let me know what you think.

Do you own shares of Microsoft?  Was that 11% increase good enough for you?

Please share your thoughts below.