Microsoft (MSFT) Rewards Shareholders With an Awesome Raise
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Who doesn’t love passive income?
I know that every penny my family earns from income streams we are not spending any time on is awesome. My personal favorite form of passive income is money earned from dividend paying stocks.
Sure … there are other income streams that have the potential for higher returns like real estate and buying internet properties … but it doesn’t take a lot of capital to start building a dividend income stream.
And if you invest in the top dividend paying stocks, your income stream should grow every single year. That is what my wife and I have been doing for almost 10 years now.
We are on pace to earn over $2,400 this year (2017) and have set a goal to earn $3,000 next year (2018).
This growth has (and will) come from 3 different sources – new investments, dividend reinvestment’s, and company increases.
Currently, new investments make up the highest percentage of dividend income gains for us as we invest over $10,000 per year in stocks. Plus, all those dividend checks we bring in ($2,400 this year) are reinvested.
The last way our dividend income grows is when company’s we own increase their dividend … which usually happens once a year per company.
The most recent dividend increase from a stock we own was from Microsoft Corporation (MSFT).
MSFT Shareholders Get a 7.69% Raise
Microsoft Corp. (MSFT) recently announced an annual dividend increase. The company has been consistently raising dividends for the past 15+ years.
While they don’t have the long track record of annual increases like some dividend aristocrats (i.e. WalMart & Target), we believe Microsoft will be a top dividend growth stock for many years to come.
Company shareholders will now receive $0.42 in quarterly dividends for each share they own … instead of $0.39 paid previously. This increase meets our desired dividend growth rate of over 6%.
The latest increase bumps the annual dividend for MSFT up to $1.68 per share compared to $1.56 just last quarter.
Overall, that is a 7.69% increase in dividend income!
How Much Extra Income?
We currently only own 82.429 shares of MSFT in our Money Sprout Index.
During a 3 year period (between 2013 and 2016), we made small monthly purchases of Microsoft from our LOYAL3 account. We setup monthly automated investments anywhere from $50 to $150 a transaction. This slow but effective strategy allowed us to keep our dollar cost average fairly low.
In addition, LOYAL3 did not charge any commissions on the trades … so each of these shares were purchased with no fees! Unfortunately, LOYAL3 is no longer in operation and we have since transferred our shares to a Fidelity account (which is earning DRiP shares for us now).
I can’t think of a better way for a small investor to buy shares in a company like Microsoft, than small monthly installments that are commission free. If you are looking for options to invest in companies like MSFT now, I would suggest looking into Robinhood.
This latest dividend increase has pushed our 12 month forward dividend income for MSFT up to $138.48, compared to $128.59 last quarter.
That is an annual dividend income increase of $9.89!
Whether they are large or small, all of these increases can really add up over the months and years.
With this latest increase by Microsoft, along with recent stock purchases and dividend reinvestment … our annualized forward dividend income has risen to $2,735.67.
Dividend Growth for MSFT
We have owned shares of Microsoft (MSFT) for almost 4 years now. The company has been one of the most stable dividend growth stocks in our portfolio and has been consistent with annual raises.
Overall, the company has been raising dividends at a high growth rate for the past 10+ years. Most of those increases have been well over 10%, but has recently slowed down a bit.
Take a look at the annual dividend payments since 2012 –
- 2012 – $0.83
- 2013 – $0.97
- 2014 – $1.15
- 2015 – $1.29
- 2016 – $1.47
- 2017 – $1.59 (projected)
Note – The 2017 dividend has been prorated to reflect a dividend increase during the year (after the third quarter payout).
As you can tell from the numbers above, MSFT dividends have been raised consistently over the past several years with awesome growth.
Typically, we look for stocks with a 5-year or 10-year dividend growth rate (DGR) of 6% or higher. Microsoft has shown much higher DGR’s above 6%, since it started paying a dividend over 10 years ago.
Here are a few average growth rates for shares of Microsoft –
- 1 Year DGR – 8.16% (2016 to 2017)
- 3 Year DGR – 11.43% (2014 to 2017)
- 5 Year DGR – 13.94% (2012 to 2017)
Overall, the dividend growth of the company has been well over double digits … except for this past year! Even though this most recent increase fell below double digits, an 8%+ increase is awesome.
Microsoft – Buy, Sell, or Hold?
We started buying shares of Microsoft (MSFT) back in November 2013 from our LOYAL3 account.
Since that time, we have earned $289.43 in dividends from the company. Up until May 2017, we had owned these shares in our LOYAL3 account, so there was no option for DRiP … which meant no additional shares were bought directly from dividends.
Note – Even though we didn’t have DRiP for our MSFT shares, we used our dividends to fund other purchases … in some cases more shares of MSFT.
Since transferring our shares to a Fidelity account, we are now adding DRiP shares (so far 1 quarter).
Here are a few stats from owning stock in Microsoft –
- Total Investment – $3,764.12
- Shares Purchased – 82.000
- Dividends Earned – $289.43
- DRiP Shares – 0.429
To date, we have earned back 7.69% of our overall investment in the company … just from dividends! How awesome is that?
And even cooler is the fact that we are earning a 3.68% yield on cost on our shares. As time goes by and we keep reinvesting through DRiP and the company gives us annual raises … this number will continue to grow.
At the time of this writing, MSFT meets SOME of our stock screen criteria based on the following metrics –
- Current Yield – 2.09%
- Payout Ratio – 57.56%
- P/E Ratio – 27.59
The company meets some of the criteria that we look for when picking stocks. For example, the company does have a current yield >= 2% and a payout ratio <= 60% (although it is close). In addition, the dividend growth rate for both 5 and 10 years is well about our 6% threshold. The P/E ratio on the other hand is well above our threshold of 20 or below. And, shares of Microsoft currently make up 5.1% of our overall portfolio.
Based on all of this, we have MSFT as a solid HOLD for now. The company is also trading very close to it’s 52-week high, so there is no rush for us to put new money into this company. If the company were to ever announce a dividend cut … then we would sell all of our shares in the company. But for now … we hold our shares and will continue to collect $100+ a year from the company!
Full Disclosure – At the time of this writing, we owned shares in the following stocks noted in this post – MSFT, TGT, and WMT. The material above is not a recommendation to buy. Please do your own research on a company before deciding to invest.