Microsoft (NASDAQ:MSFT) shareholders have been rewarded handsomely recently. The stock surged over the past year, rising 54%. That crushed the S&P 500's 28% return over the same timeframe.

While the software giant's bullish run has been great for Microsoft shareholders, it makes deciding whether to buy the stock today more difficult than it was one year ago. This is particularly the case for dividend investors. Because of a rising stock price, Microsoft's dividend yield has come down from 1.7% a year ago to 1.2% today.

Fortunately, however, dividend investors can expect -- with near certainty -- a nice dividend increase from Microsoft in 2020.

A roll of cash with a sign next to it reading, dividends.

Image source: Getty Images.

Microsoft's dividend

Since 2004, Microsoft has paid dividends to investors every year. With its regular dividend supported by strong free cash flow, the company has morphed into a great dividend stock. This becomes especially clear when investors consider Microsoft's robust dividend growth over the past five years. The company's quarterly dividend payment has increased from $0.31 to $0.51 over the past five years, translating to an annualized growth rate of 10.5%. 

Microsoft has kept up this growth rate in recent years, even delivering accelerated growth in 2019. It boosted its dividend by 9.5% in 2018 and by 11% last year

Currently, Microsoft is paying out a quarterly dividend of $0.51, or $2.04 annually.

Why double-digit dividend growth is likely in 2020

Of course, Microsoft's dividend will probably see another meaningful double-digit dividend increase this year as well, as revenue and earnings are both growing nicely. In Microsoft's most recently reported quarter (Q1 of fiscal 2020), revenue was up 14% year over year, operating income increased 27%, and earnings per share rose 21%. Similar growth was achieved in Microsoft's full-year fiscal 2019 results.

Another reason to expect a strong dividend increase this year is that the company's free cash flow (cash from operations less capital expenditures) is hitting record levels. Trailing-12-month free cash flow is $38.6 billion, with only $14.1 billion of this figure going toward dividends. 

Microsoft's strong revenue growth, improving profitability, and robust cash flow relative to today's dividend payments make a good case for more double-digit dividend growth in 2020.

The company typically announces a dividend increase every year in September. That means Microsoft is likely to pay two more $0.51 quarterly dividends before it gives the payout another boost.