3 Reasons to Love Microsoft's Dividend

Key Points

• Microsoft's dividend is covered by enormous cash generation, with plenty of room to rise.

• The company continues to raise its payout while its cloud-and-AI engine powers earnings growth.

• Management balances big capital spending with steady buybacks and dividends.

• 10 stocks we like better than Microsoft ›

With another strong quarter behind it, it's a good time to revisit the dividend from Microsoft (NASDAQ: MSFT). Of course, one area where the company continues to deliver is its dividend. Even as the software and cloud giant is spending heavily to build artificial intelligence (AI) infrastructure, cash generation remains robust, setting the stage for further dividend growth for years to come.

Of course, the case for Microsoft's dividend isn't about a high yield. It's about safety, consistent increases, and the company's capacity to keep lifting the payout as earnings expand. In fact, despite its low yield, Microsoft arguably remains one of the best dividend stocks around -- despite its conservative dividend yield.

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Here are three reasons Microsoft's dividend still stands out.

Image source: Getty Images.

1. A reliable dividend

The best place to start is with dependability. Microsoft earned $13.64 per share in fiscal 2025 (fiscal year ended June 30). Yet, it's only paying out a small fraction of these earnings in dividends. At the dividends $0.83 quarterly run rate ($3.32 annualized), the dividend represents roughly 24% of last year's earnings per share -- a conservative level for a mature, cash-rich company.

Moving over to the cash flow statement, it's a similar story. In fiscal 2025, net cash from operations was over $136 billion, and capital expenditures totaled roughly $64.5 billion, leaving free cash flow near $71.6 billion. Yet, even with so much cash flow, Microsoft paid just $24 billion in dividends -- only about one-third of its free cash flow. Such significant headroom gives management flexibility to continue investing in growth while steadily raising the payout.

2. Strong dividend growth potential

Microsoft has been paying quarterly dividends for years and has repeatedly lifted the rate. Indeed, it's risen from $0.52 five years ago and $0.31 10 years ago.

The current $0.83 per-share quarterly dividend equates to $3.32 per share annually. At recent prices, the yield sits at about 0.7% -- modest but more meaningful when considering the dividend's growth potential.

Importantly, further increases are highly probable, given the company's incredible business momentum recently. In its fourth quarter of fiscal 2025, revenue rose 18% year over year, and Microsoft Cloud revenue climbed 27%.

The company is bullish on its growth prospects, investing heavily in expansion opportunities. In fact, management expects fiscal first-quarter capital expenditures to top $30 billion, "driven by the continued strong demand signals we see," said Microsoft CFO Amy Hood in the company's fiscal fourth-quarter earnings call. Those demand signals, of course, have been bolstered by the company's ongoing integration of AI features into its software and services.

"Cloud and AI is the driving force of business transformation across every industry," Chairman and CEO Satya Nadella said in the company's fiscal fourth-quarter earnings release.

These robust investments should secure strong double-digit annualized revenue and earnings growth for Microsoft for the next few years at least, providing nice support for continued dividend growth.

3. Don't forget Microsoft's buyback program

Microsoft's capital expenditures have been mounting as the company builds data centers and capabilities for AI workloads. Even so, the software giant continues to send substantial cash back to shareholders -- and it's doing so in more ways than one.

In fiscal 2025, Microsoft repurchased about $18.4 billion of stock and returned $9.4 billion via dividends and buybacks in the fourth quarter alone. A $60 billion repurchase authorization -- approved last fall -- adds another lever that management can pull alongside the dividend. These dynamics point to a thoughtful capital allocation approach: Invest aggressively in the business while returning capital through dividends and buybacks.

There are, of course, risks to watch. Heavy capital spending can compress near-term free cash flow, and cloud competition remains intense. But Microsoft's scale, balance sheet strength, and expanding earnings base leave ample room to navigate those pressures while continuing to lift the payout.

For investors who prefer safety and growth over headline yield, Microsoft stock is a good option, featuring reliable coverage today, strong growth potential, and a well-rounded capital return program that includes an aggressive share repurchase program.

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Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.