Microsoft Pays Out More in Dividends Than It Spends Buying Back Stock. Here's What That Does for Investors.

For years, Microsoft (NASDAQ:MSFT) spent more money buying back its own stock than it paid out in dividends. In fiscal 2021 (the year ended June 30, 2021), for instance, the software giant put $27.4 billion toward repurchases and $16.5 billion toward dividends.

That mix has flipped.

Microsoft's fiscal 2026 annual report shows $27.0 billion of dividends declared against $16.7 billion of stock repurchased under the company's buyback program. Measured by the cash actually spent on each, dividends passed buybacks in fiscal 2024 and have been the bigger half of the company's capital return ever since.

And the flip isn't even the most surprising part. All of that buying barely moves the share count anymore.

Image source: Getty Images.

The dividend: now the bigger half

Microsoft pays a quarterly dividend of $0.91 per share, or $3.64 per year. At the current share price (about $500 as of this writing), the dividend yield is about 0.7%.

The payout is small for a dividend stock, but it's growing quickly. Dividends declared per share rose about 10% in fiscal 2026 and about 10% the year before that.

The dividend is also easy for the tech company to afford. The company earned $133.7 billion of net income in fiscal 2026 (a 31% increase over fiscal 2025), so the payout ratio sits near 20%.

Another raise could come soon, too. Microsoft announced its last increase in mid-September of 2025 and has now declared four straight quarterly dividends at that rate.

The buyback, by contrast, has become the flexible half. Microsoft repurchased $16.7 billion of stock in fiscal 2026, up from $13.0 billion the year before. The buying falls under the $60 billion program the board approved in September 2024, which still had $40.6 billion remaining at the end of fiscal 2026. (Even counting $5.6 billion of shares bought to cover taxes on employee stock awards, repurchase spending still trailed the $26.4 billion of dividends Microsoft paid in cash.)

The buyback mostly offsets dilution

In fiscal 2026, Microsoft repurchased 36 million shares. It also issued 29 million new ones during the year, largely tied to stock-based employee pay -- an expense that ran to $12.4 billion. The net effect: The share count fell by 7 million shares, or about 0.1%, to 7.43 billion.

And fiscal 2026 was the productive one. In fiscal 2025, Microsoft bought back 31 million shares and issued 31 million, so the count ended the year essentially where it began.

Zoom out, and the pattern holds. The share count stood at about 7.52 billion at the end of fiscal 2021 and finished fiscal 2026 at about 7.43 billion, about 1% lower.

In other words, the buyback's job isn't shrinking the share count. It's keeping the count from growing while the company pays its employees partly in stock.

That job is worth doing, I think. After all, dilution can add up quickly. But it's a different job than investors may imagine.

Did the buybacks boost earnings per share?

Barely. Microsoft earned $17.95 per diluted share in fiscal 2026, up from $8.05 five years earlier -- growth of about 123%. Net income rose about 118% over those five years, to $133.7 billion from $61.3 billion. The gap between those growth rates is the share count's entire contribution -- the average diluted count fell only about 2%.

Put another way, had the share count stayed put since fiscal 2021, per-share earnings growth still would have landed near 118%. Nearly all of it came from the business earning more money, not from spreading its earnings across fewer shares.

The cash went into the business instead. In fiscal 2021, Microsoft's additions to property and equipment came to $20.6 billion. Five years later, with data centers for the cloud and artificial intelligence build-out driving much of the spending, the figure had climbed to $115.9 billion, stepping up every year in between.

The cash spent on dividends and share repurchases, meanwhile, went from more than 70% of net income five years ago to a little over a third of it in fiscal 2026. I think that's the right call for a company with this much to build.

Ultimately, the split is a decent guide to what shareholders can count on. Not only is the dividend the bigger half of Microsoft's capital return, but it's also the dependable one. A payout ratio near 20% means Microsoft can keep raising the payout for years to come.

The buyback is the smaller half. And at its current pace, it does little more than offset dilution.

For five years, Microsoft's per-share earnings growth has come from profits. It's likely to stay that way.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft. The Motley Fool has a disclosure policy.