Is MSFT Stock Worth an Investment?
Microsoft Corporation (NASDAQ:MSFT) stock would be considered a dinosaur in the technology sector, having been in business for over 42 years. But is MSFT stock one to stay away from?
The technology sector is one of the hardest to operate a business in due to the frequent changes in technology. A new gadget or software could be released, and then it means nothing to consumers the following month.
As such, when considering investing in the technology sector, the past is a great indicator to look at. Doing so will give insight on how the company has adjusted its business strategy. The future is also important, if not more so, since investing is essentially based around a future outlook strategy.
Since Microsoft has survived so long, it must mean that the company is doing something right. And the evidence of this is there, including the share price and how shareholders have been rewarded. Below is more information and answers to some of your questions, which include:
- How Much Does Microsoft Corporate Pay in Dividends?
- Microsoft Corporate Stock Dividend History
- Microsoft Ex-Dividend Date
- Microsoft Corporation Current Dividend Policy
- Microsoft Corporation Dividend Reinvestment Plan
- Is Microsoft Corporation the Next “Dividend Aristocrat?”
- How Else Has Microsoft Rewarded Shareholders?
- Microsoft Corporation Stock Split History
- Will Microsoft Split its Shares in 2017?
- MSFT Stock Forecasted Earnings Per Share
- Microsoft Corporation Stock Predictions for 2017
#1. How Much Does Microsoft Corporate Pay in Dividends?
MSFT stock pays quarterly dividend to its shareholders. Based on the past history the dividend is paid out in March, June, September, and December. Below is a table detailing more information about the dividend.
| Dividend Yield | Annual Dividend Payment | Payout Ratio | Dividend Growth |
| 2.37% | $1.56 | 69% | 13 Years |
The dividend has been increased once a year for the past 13 years.
The payout ratio represents the percentage of earnings that is distributed as a dividend payment.
Traditionally, companies in the tech sector do not pay out a dividend and retaining their earnings instead. This is because companies want to use as much capital as possible for the likes of acquisitions and internal investments. The reason Microsoft is an exception is because it has a large market share in its sector and a large amount of recurring revenue. Were Microsoft’s recurring revenue not as predictable as it is, not seeing a dividend paid out would be a possibility.
The first dividend was paid out to shareholders in 2003; at the time, the dividend was paid on an annual basis. The following year saw the dividend paid out on a annual basis once again.
In 2004, two unique dividend events occurred. The first was the dividend was doubled, while the second was the payout of a special dividend of $3.00.
Then, in 2005, the dividend payment was increased again, and changed from annual to quarterly, which it has remained since. The dividend has been increasing each year, with the average rise being 15.8% per year. That said, the more recent hikes have been higher than the all-time average. Below is more information.
| Ex-Dividend Date | $/Share | Change | Declaration Date | Record Date | Payment Date |
|---|---|---|---|---|---|
| Feb. 14, 2017 | $0.39 | N/A | Nov. 30, 2016 | Feb. 16, 2017 | Mar. 9, 2017 |
| Nov. 16, 2016 | $0.39 | 8.3% | Sept. 20, 2016 | Nov. 17, 2016 | Dec. 8, 2016 |
| Aug. 16, 2016 | $0.36 | N/A | Jun. 15, 2016 | Aug. 18, 2016 | Sept. 8, 2016 |
| May 17, 2016 | $0.36 | N/A | Mar. 16, 2016 | May 19, 2016 | Jun. 9, 2016 |
| Feb. 16, 2016 | $0.36 | N/A | Dec. 3, 2015 | Feb. 18, 2016 | Mar. 10, 2016 |
| Nov. 17, 2015 | $0.36 | 16.1% | Sept. 15, 2015 | Nov. 19, 2015 | Dec. 10, 2015 |
| Aug. 18, 2015 | $0.31 | N/A | Jun. 9, 2015 | Aug. 20, 2015 | Sept. 10, 2015 |
| May 19/2015 | $0.31 | N/A | Mar. 11, 2015 | May 21, 2015 | Jun. 11, 2015 |
| Feb. 17, 2015 | $0.31 | N/A | Dec. 4, 2014 | Feb. 19, 2015 | Mar. 12, 2015 |
| Nov. 18, 2014 | $0.31 | 10.7% | Sept. 17, 2014 | Nov. 20, 2014 | Dec. 11, 2014 |
| Aug. 19, 2014 | $0.28 | N/A | Jun. 11, 2014 | Aug. 21, 2014 | Sept. 11, 2014 |
| May 13, 2014 | $0.28 | N/A | Mar. 12, 2014 | May 15, 2014 | Jun. 12, 2014 |
| Feb. 18, 2014 | $0.28 | N/A | Nov. 20, 2013 | Feb. 20, 2014 | Mar. 13. 2014 |
| Nov. 19, 2013 | $0.28 | 21.7% | Sept. 17, 2013 | Nov. 21, 2013 | Dec. 12, 2013 |
| Aug. 13, 2013 | $0.23 | N/A | Jun. 13, 2013 | Aug. 15, 2013 | Sept. 12, 2013 |
| May 14, 2013 | $0.23 | N/A | Mar. 12, 2013 | May 16, 2013 | Jun. 13, 2013 |
| Feb. 19, 2013 | $0.23 | N/A | Nov. 29, 2012 | Feb. 21, 2013 | Mar. 14, 2013 |
| Nov. 13, 2012 | $0.23 | 15% | Sept. 18, 2012 | Nov. 15, 2012 | Dec. 13, 2012 |
| Aug. 14, 2012 | $0.20 | N/A | Jun. 13, 2012 | Aug. 16, 2012 | Sept. 13, 2012 |
| May 15, 2012 | $0.20 | N/A | Mar. 13, 2012 | May 17, 2012 | Jun. 14, 2012 |
| Feb. 10, 2012 | $0.20 | N/A | Sept. 14,2011 | Feb.14, 2012 | Mar. 8, 2012 |
| Nov. 15, 2011 | $0.20 | 25% | Sept. 20, 2011 | Nov. 17, 2011 | Dec. 8, 2011 |
| Aug. 16, 2011 | $0.16 | N/A | Jun. 16, 2011 | Aug. 18, 2011 | Sept. 8, 2011 |
#3. Microsoft Ex-Dividend Date
In order to receive a dividend, MSFT stock must be owned by a certain date. For 2017, there are four dividend payouts planned, with two declared as of this writing. This should not be looked at as a negative; typically, most companies declare their dividend a few weeks before the payout.
Below are the details regarding the ex-dividend, record, and payment dates.
| Ex-Dividend Date | Record Date | Payment Date | Dividend Per Share |
| May 16, 2017 | May 18, 2017 | Jun. 8, 2017 | $0.39 |
| Feb. 14, 2017 | Feb. 16, 2017 | Mar. 9, 2017 | $0.39 |
In order to receive the dividend, MSFT stock would need to be owned by the day before the ex-dividend date; in this case, that would be February 13 and May 15. If the shares were purchased on the actual ex-dividend date, no payment would be received.
The record date is used by the company to record all eligible shareholders that will receive the dividend. The number of eligible shares are also recorded.
The last date is the payment date, which is the date that the $0.39 per share would be received.
#4. Will MSFT Raise Its Dividend in 2017?
Over the past five years, MSFT stock has been distributing more than half of earnings as a dividend, with the current amount being 69%. Since the dividend payment has been put in place, it has been reviewed annually in September. There is a high probability of the dividend seeing another hike due to the conservative payout ratio and affordability to do so, given Microsoft’s large cash balance.
This gives management the flexibility to distribute a dividend and also use the remainder of earnings to reinvest back in the business. And since Microsoft is a company that sees a lot of recurring revenue, there is no need to heavily do the latter. This is the reason for the large dividend.
#5. Microsoft Corporation Dividend Reinvestment Plan
Since MSFT stock pays a dividend, shareholders have a choice between receiving the cash payment or using the cash to purchase more shares of the company. This method is known as a dividend reinvestment program (DRIP). If you are thinking of enrolling in the DRIP program, here are some benefits.
When purchasing shares in a company, there is a commission fee. And should you continuously buy MSFT stock, the commission costs could add up, eating into your total return. By using the dividend to purchase more shares, you will avoid commission fees.
Another benefit is that every dollar from the dividend will be used to purchase more shares. For instance, it will highly be likely that the dividend payment will amount to the exact price of a whole share. This is why fractional shares would be purchased.
For example, let’s say you own 100 shares of MSFT stock. The current dividend–again, paid on a quarterly basis–is $0.39, and the shares are trading at $65.77. This means the payout is $39.00. By being enrolled in a DRIP, 0.59 shares ($39.00 ÷ $65.77) would be bought, resulting in owning 100.59 shares.
Since fractional shares can be purchased, shareholders have the option of choosing how much of the dividend payment they would like to use. For instance, you can receive 75% as a cash payment and use the remaining 25% to purchase more shares.
A major benefit of this is the resulting compounding. As each dividend is paid, there will be an excess return received. This is explained further below.
Below are two charts showing the returns over a 10-year period with an investment of $10,000 made in 2007. The first details the returns with dividends being reinvested back into Microsoft:
With the dividend being reinvested in the stock, the result is a total return of 193.33% and an annual return of 11.36%. The total dollar amount after the 10-year period would amount to $29,328.66.
Next is the returns when the dividend is received as cash:
With no reinvestment, the total return is 160.24%, with an annual return of 10.04%. The $10,000 that was first initially invested would amount to $26,031.90 in the stock.
The difference in the total return between the two methods is $3,296.76, or 33%, due solely to the compounding affect of the dividend. Another reason for the excess returns is that Microsoft has grown its dividend payment over these past 10 years, which means more money is being used to purchase MSFT stock.
One thing to keep in mind when using a DRIP is that this investment strategy requires being patience and long-term investing. The longer a stock is held, the greater portion of the dividend will be used to purchase more shares.
Going by the charts above, MSFT stock was in negative territory. However, there is no need to panic with a DRIP in place. That’s because more shares would be bought when being compared to the initial purchase price, which will make for a larger payoff after some time passes.
#6. Is Microsoft Corporation the Next “Dividend Aristocrat?”
There is a special index known as the S&P 500 Dividend Aristocrat Index. There are only 52 companies in this index, which requires being a Fortune 500 company and having paid an increasing dividend for the past 25 years to be a part of.
While Microsoft is on the Fortune 500, the dividend side of things is not quite there yet. Its dividend has only been consistently going up since 2004. However, as noted above, future hikes are likely. Also keep in mind that the period in which the dividend has increased includes the 2008 recession.
#7. How Else Has Microsoft Rewarded Shareholders?
In September 2016, the board of directors approved a $40.0-billion share repurchase program. The big benefits for shareholders of share buybacks is that they are left owning a larger percentage of the company and no taxes are incurred as a result. (Source: “Microsoft announces quarterly dividend increase and share repurchase program,” Microsoft Corporation, September 20, 2016.)
This is how it works: as Microsoft repurchases more shares, fewer outstanding shares remain. As a result, each remaining share is now worth more. Also, since there will be continued buying of MSFT stock, it means that the stock price will have support to the downside.
#8. Microsoft Corporation Stock Split History
A stock split is exactly what it sounds like: the stock splitting. It’s a corporate event which changes the trading price of the stock and the total number of outstanding shares. The total dollar value of the investment in the shares will remain the same on a pre-split and post-split basis.
For example, let’s say you own 100 shares of a company and the stock is trading at $50.00 per share. However, the company just announced a five-for-one stock split (this ratio is determined by the company). This would result in the number of shares increasing to 500 (100 x 5 [multiple ratio]). The share price would then decrease to $10.00 ($50 ÷ 2). The total value invested in the company will remain at $5,000, whether the split occurred or not.
A stock split could occur for a couple reasons. One is that management has realized that a very high stock price may keep away retail investors, who at times look for stocks that are trading at a lower price because then more shares could be purchased. And just the split alone will attract more retail investors, broadening the company’s investor base.
Another reason a company would go through with a stock split is because it provides more liquidity for the stock. Since the number of shares will increase, there will be more shares being bought and sold. This would also reduce the bid-ask spread of the stock; the smaller the spread, the less risk when attempting to get in or out.
Below is an in-depth look at MSFT stock’s split history. Microsoft has had a total of nine stock splits, done at different ratios. Note that the final column is if 100 shares were owned in March 1986, when the initial public offering (IPO) occurred.
| Stock Split Ratio | Payable Date | Closing Before Split | Closing After Split | Total |
| N/A | Mar. 13, 1986 | $21.00 | N/A | 100 |
| 2-For-1 | Sept. 18, 1987 | $114.50 (Sept. 18) | $53.50 (Sept. 21) | 200 |
| 2-For-1 | Apr. 12, 1990 | $120.75 (Apr.12) | $60.75 (Apr. 16) | 400 |
| 3-For-2 | Jun. 26, 1991 | $100.75 (Jun. 26) | $68.00 (Jun. 27) | 600 |
| 3-For-2 | Jun. 12, 1992 | $112.50 (Jun. 12) | $75.75 (Jun. 15) | 900 |
| 2-For-1 | May 20, 1994 | $97.75 (May 20) | $50.63 (May 23) | 1,800 |
| 2-For-1 | Dec. 6, 1996 | $152.87 (Dec. 6) | $81.75 (Dec. 9) | 3,600 |
| 2-For-1 | Feb. 20, 1998 | $155.13 (Feb. 20) | $81.63 (Feb. 23) | 7,200 |
| 2-For-1 | Mar. 26, 1999 | $178.13 (Mar. 26) | $92.38 (Mar. 29) | 14,400 |
| 2-For-1 | Feb. 14, 2003 | $48.30 (Feb. 14) | $24.96 (Feb. 18) | 28,800 |
A year after the IPO, the first stock split occurred at a two-for-one ratio. If 100 shares were purchased at the IPO or before the stock split occurred, this corporate event would result in owning 200 shares. Then, a few years later in April of 1990, another stock split occurred at the same ratio which would result in owning 400 shares.
The next two stock splits were done at a three-for-two ratio. Rather than doubling the number of shares, a multiple of 1.5 (3 ÷ 2) was used. Continuing from the above example, 400 shares resulted in having 600 (400 x 1.5) in the portfolio in 1991. With a three-for-two stock split ratio, the shares were reduced by 1.5, and the price was reduced to $68.00 ($100.75 ÷ 1.5). Then again, in the following year, the stock split resulted in having 900 shares (600 x 1.5).
The rest of the stock splits that have occurred were all done at a two-for-one ratio, which just simply doubles the number of shares and cuts the share price in half. When all the splits are accounted for, there would be 28,800 shares held in the portfolio; if 100 shares were purchased at the IPO date and assuming there were no sales or purchases of MSFT stock.
#9. Will Microsoft Split Its Shares in 2017?
The first eight stock splits were at a pre-split price of more than $100.00, with the last one for $48.30 occurring in 2003. Since the 52-week trading range for MSFT stock is $48.08 to $66.19, it is possible to see a stock split occur in 2017, just based on this 2003 event.
Management is aware that retail investors want exposure to the company because of its steady income stream and the high growth potential in some divisions. By splitting the stock price, it could get the attention of more investors, broadening the shareholder base further.
Before investing in a stock and researching the dividend payment, dividend yield, and stock price, look at past and projected future earnings. That’s because the dividend and stock price will be affected by the company’s earnings.
If earnings have a negative outlook, both the dividend and stock price could be impacted negatively. The opposite is true as well, with a positive earnings outlook potentially resulting in a bullish view on the stock price and dividend.
The most important aspect to consider with past earnings is their trends. Of course, the expectation is that earnings are growing as each year passes.
Estimated earnings are based on the view of the analysts that research the company. These analysts also look at direct competitors, since companies in the same sector generally have a strong correlation to each other.
Below is Microsoft’s actual earnings from the past few years and the estimated earnings outlook from analysts.
| Type of Earnings | Year | Annual Earnings |
| Actual | 2015 | $2.46 |
| Actual | 2016 | $2.79 |
| Estimated | 2017 | $2.97 |
| Estimated | 2018 | $3.27 |
| Estimated | 2019 | $3.66 |
| Estimated | 2020 | $4.24 |
This is the type of company investors consider for their portfolio. Earnings growth should affect the stock price seeing a positive return and dividend investors continuing to see growth in the payment.
Why are analysts bullish on MSFT stock?
A big reason for the bullishness on MSFT stock is due to the chief executive officer (CEO) Satya Nadella. Nadella was named the CEO in February, 2014 and since then he has been focused on making Microsoft a leaner and more efficient business. The focus has been mainly diversifying the business and more of a focus on mobile use and cloud-storage.
As CEO, Nadella decided to write down its physical phone division, Nokia. This was done because the balance sheet benefits the most from services that support the phone device rather than generating a one-time sale from the phone. Short-term this is seen negative because there are cost associated with a write-down. Over the long-term it should benefit shareholder since less money will be allocated to this division. (Source: “Microsoft to Cut Jobs, Take $7.6 Billion Writedown on Nokia,” Bloomberg, July 8, 2015.)
Another major reason analysts are bullish is due to the numbers that come out from “Microsoft Azure,” which is the cloud-computing division. Revenue from this division was up 93%, in only a year. Also the margins that are generated are quite high. This is the future direction of how storing data is heading. Microsoft is positioned in the sweet spot for the future, being one of the largest in this market segment. (Source: “Earnings Release FY17 Q2,” Microsoft Corporation, January 27, 2017.)
Microsoft is also putting their time and efforts into autonomous vehicles. The focus is not actually making the vehicle, but rather creating a platform. The goal behind this business venture is to enhance the driving experience and create a custom one for the end user.
On the business side of things, Microsoft wants to partner with many different car manufacturers. Current partnerships include Bayerische Motoren Werke AG, Volvo AB Class B, and Nissan Motor Co Ltd. This division is still in the early stages and could see a lot more deals signed in the future. (Source: “Microsoft Connected Vehicle Platform helps automakers transform cars,” Microsoft Corporation, January 5, 2017.)
#11. Microsoft Corporation Stock Predictions for 2017
There is a lot that could happen to MSFT stock that will positively affect shareholders, considering there is approximately $113.8 billion on the balance sheet that is sitting in cash and cash equivalent investments. (Source: “Microsoft Corp.,” MarketWatch, last accessed April 10, 2017.)
One potential announcement is a dividend hike. It is hard to say what the percentage increase would be were this to happen, but the over the past five years, they have been in the range of eight percent to 25%. Using this same range as a guideline metric means the dividend could increase $0.03 to $0.09, based on the current quarterly dividend of $0.39. Another special dividend is also possible.
I would not be surprised if any acquisitions were to be announced. Over the past few years, there has been between five and 10 acquisitions made in a single year, many of which were smaller tuck-in acquisitions. That said, there is a major acquisition every few years, the most recent one being social media company LinkedIn Corp (NYSE:LNKD) for $26.0 billion. Given Microsoft’s large cash balance, an acquisition in the same range is possible, if not a bigger one. (Source: “Microsoft Pays $26 Billion for LinkedIn in Biggest Deal Yet,” Bloomberg, June 13, 2016.)