Microsoft dividends last years vs competitors dividends.

How have dividends changed in Microsoft Corporation over the years?

Microsoft Corporation has grown into a behemoth of a company over the decades and with this, its dividend policies have also adapted. Traditionally, one of the biggest goals for the company has been to return value to its investors while also maintaining enough cash to continue growing the company. The dividend history of Microsoft can be broken into three major eras, as follows:

Era one: No Dividend payments

Microsoft in its early days sought to grow its business in various fields including R&D, product development, and mergers and acquisitions. As a tech company that was rapidly expanding, particularly in the 80s and early 90s, Microsoft did not pay dividends, which was the standard practice among growth-oriented companies.

2000s: Change in policies

What fundamentally changed for the company was its growth and bulging cash reserves. One of the first steps the company undertook was to initiate dividend payments, the first being $0.08 per share. This led to Microsoft’s gradual shift away from growth towards more sustainable models that catered more to long-term shareholders.

2004: Special Dividend

Microsoft made headlines back in 2004 when it announced a one-off dividend of $3.00 per share, with a spectacular total of $32 billion being paid to shareholders. Such an effort was part of an even broader attempt to cut the company’s excessive cash surplus, which stood at approximately $56 billion worth of cash at the time.

Apart from this special dividend, Microsoft’s management also reported plans to repurchase shares and increase regular dividend payments. These actions were in line with the strategy that the company pursued in implementing a development of opportunities while also trying to return cash to its investors at some point across the investment horizon.

Gradual Increase in Regular Dividends

Put forward with an initial dividend payment in 2003, Microsoft managed to push the envelope even further with constant annual dividend increases. As the company reached maturity, the steady cash flow and the steady growth of earnings allowed for regular dividend increases. For instance:

• 2005: The annual dividend rose to $0.32 per share.
• 2010: The annual dividend began at $0.52 per share and increased sharply as business performed well in recovering global economy.
• 2015: The company came out with an annualized dividend of $1.44 bringing back more value to its shareholders.

2014: A Mature Dividend Payer

Microsoft has experienced much more revenue and profit growth since Satya Nadella took over as CEO in 2014. Microsoft formed significantly less aggressive growth strategies as it became financially stronger from its increased focus on cloud computing and subscription services such as those included with Office 365 and Azure. Expansion into the Asian markets and increasing subscription and cloud customers strengthened its position in the company.

2017-2020:

Microsoft‘s annual earnings growth and free cash flow warranted a 10% increase in the company’s dividend payout every year.

2023:

Microsoft made a total dividend payment of $2.72 per share during the current financial year, implying a quarterly dividend of $0.68. This amount reflects an increase of more than 200% compared to the level of payouts the firm had to reach in order to maintain over the last decade.

Dividend Strategy Now

The company’s balance sheet suggests a mature company which is cash-rich, and its current dividend strategy aggressively pays a portion of net profits back to its shareholders. Microsoft has been able to maintain a good level of growth investments while returning shareholders a steadily increasing amount of capital. Microsoft is expected to give shareholders returns in the form of dividends at yields between 0.9% and 1% in 2024. Despite this amount being low, it’s accompanied with a long history of progressive dividends.

Share Buybacks

Besides, Microsoft is known for engaging in share buybacks as one of the company’s main policies next to the payment of dividends. Such buybacks lead to a decrease in the total number of shares in circulation, thus improving the Earnings per Share, while also exhibiting the company’s strong prospects. Microsoft returned shareholders tens of billions of dollars over the period 2016 up to 2023 to pay dividends and buy back shares, which was strengthening its shareholder-friendly policy.

Important Points Regarding Microsoft’s Dividend Strategy:

• No Dividend Initially: Microsoft went without shareholders’ dividends in its early developmental period while it was expanding faster.
• First Dividend in 2003: Regular dividends, which were absent before, were now issued as Microsoft began to cash out its shareholders.
• 2004 Special Dividend: The year 2004 also witnessed the distribution of share repurchase dividends when the company made a whopping one-time paid up dividend of $3 per share in addition to the share buyback scheme.
• Consistent Growth: Since then, Microsoft has repeatedly raised its dividend up to ten times every year, with strong sales boost growth in some years.
• Strong Balance Sheet and Cash Flow: Microsoft has been successfully maintaining a high free cash flow generation and cash balance sheet, which has allowed the company to pay dividends to its shareholders and pursue business expansion at the same time.

Future Outlook

In the coming years, Microsoft is likely to continue to grow its dividends as part of its long-term plan. The gradual transformation of its business towards cloud high-margin services and subscription software ensures that cash flow remains strong and further advancements in dividends are likely as well.

Microsoft’s dividend policy, as much as it is strong and persistent, increasingly mirrors a tech company that has moved beyond growth-dominated investment to one that seeks greater balance and income generation. When placed next to rivals Apple, Amazon, Alphabet (Google), IBM, and other key players, Microsoft’s dividend policy is above average only due to steady and consistent growth. The performance of Microsoft’s dividends against competing companies has been quite unbalanced.

Microsoft (MSFT)

• Dividend Yield (2024): Around 0.9%-1%
• Annual Dividend (2024): $2.72 per share
• Dividend Growth: Since Microsoft began paying dividends in 2003, there has been a steady increase in the amount of dividends paid, with consistent and mature growth, reaching substantial levels.
• Payout Ratio: Microsoft‘s payout ratio is quite conservative (approximately 30%-40%). High repayments as dividends leave great opportunity for reinvestments and future dividend increases.
• Share Buybacks: Microsoft repurchases shares in greater amounts than it pays in dividends, which further boosts shareholder value.

Apple (AAPL)

• Dividend Yield (2024): Approximately 0.5%-0.6%
• Annual Dividend (2024): $0.96 per share
• Dividend Growth: Apple resumed dividends in 2012 after a long hiatus. Growth in dividends has been consistent, though at a slower rate of around 6%-7% annually compared to Microsoft.
• Payout Ratio: Apple’s payout ratio is conservative, rarely exceeding 25%, allowing more room for investments and buybacks.
• Share Buybacks: Apple has consistently repurchased shares, returning even more capital to shareholders through buybacks than dividends.

Amazon (AMZN)

• Dividend Yield (2024): N/A
• Annual Dividend: None
• Dividend Policy: Amazon does not offer dividends, focusing on reinvesting profits to fuel growth in areas such as e-commerce, AWS, logistics, and technology.
• Share Buybacks: Similarly, Amazon does not prioritize share buybacks, focusing on aggressive reinvestment for growth.

Alphabet (Google) (GOOGL)

• Dividend Yield (2024): N/A
• Annual Dividend: None
• Dividend Policy: Alphabet has not paid dividends, using its cash flow to invest in growth areas such as cloud computing, AI, and advertising.
• Share Buybacks: Alphabet has a share buyback program, though it is smaller compared to Microsoft‘s and Apple’s.

IBM (IBM)

• Dividend Yield (2024): Approximately 4%-5%
• Annual Dividend (2024): $6.64 per share
• Dividend Growth: IBM is a more traditional dividend stock with slower growth in recent years due to challenges in transitioning to cloud and AI. Dividend growth typically hovers between 1%-3%.
• Payout Ratio: IBM has a higher payout ratio (60%-70%) compared to Microsoft or Apple, reflecting its mature business model and limited reinvestment potential.
• Share Buybacks: IBM has reduced buybacks in recent years to focus more on restructuring and dividend payments.

Comparison Overview

Summary

Microsoft’s capital return strategy stands out with its consistent and growing dividends, alongside aggressive share buybacks. While its dividend yield is not as high as IBM‘s, Microsoft offers better dividend growth and a solid balance between growth and income. For income-seeking investors, Microsoft provides reliable returns with long-term growth prospects that set it apart from its competitors.