Dividend Increase | Microsoft (MSFT)

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Microsoft for the 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 15th the Board of Directors at Microsoft Corporation (MSFT) approved an increase in the quarterly dividend payment.  The dividend was increased from $0.51 up to $0.56.  That's an excellent 9.8% increase.  Microsoft is a Dividend Contender with 18 consecutive years of dividend growth. Shares currently yield 1.10% based on the new annualized payout.

The new dividend will be payable December 10th to shareholders of record as of November 19th.  

Since I own 44.413 shares of Microsoft in my FI Portfolio, this raise increased my forward 12-month dividends by $8.88.  This is the 8th dividend increase I've received from Microsoft since initiating a position in May 2013.  Total organic dividend growth over that time is a whopping 143%.  

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

Microsoft's dividend history is quite impressive and honestly I had forgotten just how long it was.  Since initiating a dividend in FY 2003, Microsoft has grown the payout every single year as well as paid out several special dividends as well.  

During Microsoft's 18 year streak, year over year dividend growth has ranged from 4.0% to 100.0% with an average raise of 22.6% and a median increase of 13.9%.

Looking at the 14 rolling 5-year periods, Microsoft's annualized dividend growth has ranged from 9.5% to 40.0% with an average of 16.4% and a median of 14.7%.

Zooming out further to the 9 rolling 10-year periods, Microsoft's dividend growth has ranged from 13.6% to 27.2% with an average of 16.5% and a median of 14.4%.

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

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

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 average forward dividend yield is 1.95% which corresponds to a share price of $115 based on the new annualized payout.  

I consider the fair value range based on dividend yield theory to be the 5-year moving average yield +/- 10%.  That gives a fair value range of $105 - $128 and suggests that Microsoft is trading well above its fair value range based on dividend yield theory.  

Wrap Up

This raise increased my forward dividends by $8.88 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my FI Portfolio's current yield of 2.72% this raise is like I invested an extra $326 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.

I've now received 31 raises from the companies in my FI Portfolio increasing my forward-12 month dividends by $233.14.

My FI Portfolio's forward-12 month dividends are $7,396.29.  Including my FolioFirst portfolio's forward dividends of $104.61 brings my total taxable accounts dividends to $7,500.90.  My Roth IRA's forward 12-month dividends are $661.60.  My Rollover IRA's forward dividends are $2,981.05.  Across all accounts I can expect to receive $11,143.55 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?  Do you think they can maintain >10% dividend growth for the foreseeable future?

Please share your thoughts below.


  1. MSFT continues to fire on all cylinders. Happy to hold some and would like to buy more even though it isn't priced cheap. Thanks for sharing.

    1. DivHut,

      Wish I had bought a lot more when I did. Completely didn't realize/remember that it was trading at >10% FCF yields back then. Granted the business had missed the boat on a lot of things that were right in their wheelhouse, likely due to management that was resting on its laurels instead of looking for new opportunities. But a core business at a 10% FCF yield gave a lot of optionality for Nadella when he took over.


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