Microsoft continues to demonstrate its commitment to long-term investors through a robust approach to dividends and stock buybacks, positioning itself as a compelling choice in the world of investment. Known as one of the “Magnificent Seven” stocks—alongside Nvidia, Apple, Alphabet, Amazon, Meta Platforms, and Tesla—Microsoft has garnered a reputation for delivering market-beating returns and promising growth prospects.
Remarkably, Microsoft leads the S&P 500 in total cash spent on dividends, outpacing industry giants like Apple and JPMorgan Chase, as well as high-yield companies such as ExxonMobil and Johnson & Johnson. During fiscal 2025, which concluded on June 30, Microsoft allocated $18.42 billion for stock buybacks and a substantial $24.08 billion for dividends. In September, the company also announced a 10% increase in dividends, marking the 16th consecutive year of such growth.
Though its current dividend yield stands at 0.7%, Microsoft is increasingly recognized as an underrated dividend stock. Many investors mistakenly fixate on the forward dividend yield, which provides a limited view of a stock’s potential for passive income. Instead, the emphasis should be on the dividend growth rate, which is more reflective of a company’s ability to sustain and increase dividends over time.
Microsoft’s achievements particularly shine when one considers the yield on cost for long-term investors. For those who purchased shares a decade ago at roughly $56, the yield on cost now stands at an impressive 6.5%. This metric illustrates the growing value of dividends compared to the initial investment rather than the current stock price, emphasizing Microsoft’s effective long-term strategy.
The advantage of Microsoft’s model is further evidenced by its consistent dividends juxtaposed against stock buybacks. By repurchasing shares, Microsoft not only enhances shareholder value but also drives earnings per share upward, making the company an attractive option for investors. With the combination of its significant cash reserves and robust operational performance, Microsoft manages to maintain a healthy free cash flow, balancing its increased capital expenditures with growing income from operations.
The power of Microsoft also extends to its diverse revenue streams. Boasting a thriving cloud computing arm through Microsoft Azure and significant involvement in artificial intelligence via partnerships like OpenAI, the company’s breadth of offerings reduces reliance on any single revenue source. This multi-faceted approach helps mitigate risks associated with aggressive investments, as seen in other tech firms like Meta Platforms.
For prospective investors, Microsoft’s appeal lies not only in its dividend practices but also in its overall management of shareholder capital through growth initiatives. Although the current yield may be modest, the potential for increased future payouts, supported by a strong balance sheet and diverse business model, makes Microsoft a foundational stock worth considering. As Microsoft continues to innovate and grow, those who invest today may find themselves benefiting from much higher yields on cost in the years ahead, ensuring that the company remains a robust option amid market fluctuations.