Dividend Growth Stock Overview: Microsoft Corporation

Microsoft's worldwide domination of the computer market has powered dividend
growth since 2003.
Photo: Flickr.com/JeepersMedia

About Microsoft Corporation

Microsoft designs, markets and sells computer software and hardware to consumer and business markets worldwide. The company has offices in more than 100 countries. While Microsoft is best known by consumers for its Windows operating system and Microsoft Office products, the company has had an established business server business for many years and is moving quickly into cloud computing to support mobile services.

The company has six operating segments, divided between Devices and Consumer (D&C), and Commercial end uses:

  • The D&C licensing segment is responsible for non-volume (i.e., individual) licensing of the Windows computer and mobile operating systems and Microsoft Office products.
  • The Computing and Gaming Hardware segment is responsible for the Xbox gaming and entertainment consoles and accessories, Surface devices and accessories, and video game licensing.
  • The Phone Hardware segment is responsible for mobile hardware that resulted from the acquisition of Nokia Devices and Services in April 2014.
  • The D&C Other segment is responsible for revenues resulting from the resale of products in the Windows Store and Xbox marketplace, search advertising, and display advertising.

The two Commercial segments are Commercial Licensing, which is responsible for server products (e.g., Windows Server, Microsoft SQL Servers, MS Office for business, etc.), and Commercial Other, which derives its revenues from sales of cloud services and Office 365 to business customers, and consulting services to businesses.

Microsoft’s competitors include Apple, Sony and Samsung in the consumer market, and Amazon, Google, IBM, Oracle and Salesforce.com in the commercial market. To remain competitive, Microsoft spends about 13% of its annual revenues on research and development.

The company is a member of the S&P 500 and Dow Jones Industrial indices and trades under the ticker symbol MSFT.

Microsoft’s Dividend and Stock Split History

Microsoft Dividends

Microsoft has compounded dividends at 15% a year over the last decade.

Microsoft Corporation began increasing dividends in 2003. The company announces annual dividend increases in mid-September, with the stock going ex-dividend in mid-November. The company’s last dividend increase was announced in September 2015, when Microsoft increased the dividend by 16.1% to an annualized $1.44. I expect Microsoft to announce its 14th year of dividend growth in September 2016.

Microsoft has built an outstanding record of dividend growth since initiating dividends in 2003. Over the last 5 and 10 years, the company compounded dividends at 18.6% and 15.0%, respectively. Since 2003, the company has averaged a dividend growth rate of more than 26%.

Like many technology companies, Microsoft grew quickly early in its history. Over time, the company transformed from a growth company to a dividend company. Stock splits came often when Microsoft was a young company; between September 1987 and February 2003, Microsoft split its stock 9 times. The company split its stock 2-for-1 in September 1987, April 1990, May 1994, December 1996, February 1998, March 1999, and February 2003, and 3-for-2 in June 1991 and June 1992. A single share of Microsoft stock purchased prior to September 1987 would have split by now into 288 shares.

Over the 5 years ending on December 31, 2015, Microsoft Corporation stock appreciated at an annualized rate of 17.81%, from a split-adjusted $24.27 to $55.08. This significantly outperformed the 10.2% compounded return of the S&P 500 index over the same period.

Microsoft’s Direct Purchase and Dividend Reinvestment Plans

Microsoft Corporation has both direct purchase and dividend reinvestment plans. You do not need to already be an investor in Microsoft Corporation to participate in the plans. For new investors, the minimum initial investment is $250. Follow on direct investments have a minimum of $25. The dividend reinvestment plan allows full or partial reinvestment of dividends unless you own less than 100 shares, in which case the dividends will be fully reinvested.

The plans’ fee structures are not favorable for investors. When purchasing shares directly through the plan, you’ll be assessed a fee of $2.50 plus a commission of 10 cents per share. When you reinvest dividends, you’ll pay a fee of 5% of the amount reinvested, up to $3.00, plus a commission of 6 cents per share. The dividend reinvestment fee is waived for accounts with less than 100 shares.

The fee when selling your shares is $15 plus a commission of 10 cents per share. This fee will be deducted from the sales proceeds.

Helpful Links

Microsoft Corporation’s Investor Relations Website

Current quote and financial summary for Microsoft Corporation (finviz.com)

Information on the direct purchase and dividend reinvestment plans for Microsoft Corporation

 

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