Many investors begin their search for dividend-paying stocks by focusing on one metric: the yield. While eye-popping yields of 6% or greater are tempting, they are often also an indication that the market believes the stock is in trouble.
Investors would be better served by considering a stock's total return. This metric takes into account the stock price appreciation, share buybacks, and paid dividends. It captures what return investors would realize from owning the stock over a certain time period.
Microsoft (MSFT 0.85%) and Accenture (ACN 2.03%) are two dividend-paying, high-growth tech companies. While neither has a dividend yield investors would consider high -- Microsoft's is around 0.75% and Accenture's is 1% -- each stock has exciting price growth prospects. Getting paid a dividend is just icing on the cake when you are also watching the stock price steadily rise. Let's find out a bit more about these two stocks.
Depending on daily market fluctuations, Microsoft is the largest market cap company in the world at the moment. Despite the huge size, the company is still growing revenue and profits at a surprising pace.
Microsoft splits its company into three operating segments: productivity and business processes, intelligent cloud, and more personal computing. The first includes offerings consumers are familiar with, like its Office Suite products and LinkedIn. More personal computing includes hardware such as Xbox and Surface tablets. Finally, its most exciting segment is the intelligent cloud, which includes its Azure cloud computing division. All generate billions in revenue, but the intelligent cloud is also delivering incredible growth.
|Division||Revenue||Fiscal 2022 Q1 Growth (YOY)|
|Intelligent cloud||$17.0 billion||31%|
|Productivity and business processes||$15.0 billion||22%|
|More personal computing||$13.3 billion||12%|
When the largest segment is also generating the most growth, investors should get excited as it will continue distancing itself from the others. Combined, this $2.53 trillion company grew its first-quarter revenue 22% year over year and earnings per share by 25%.
During its first-quarter conference call, Microsoft guided for about $1 billion more second-quarter revenue in both its cloud and business segments when compared to Q1. Q2 encompasses the holiday quarter where personal computing shines; Microsoft projects about $3 billion more revenue versus Q1. In total, Microsoft is expecting Q2 revenue of around $50.5 billion, or 17.4% growth.
Addressing total return, Microsoft returned shareholders $10.9 billion, or 0.4% of its company value. It divides that capital between share repurchases of $6.2 billion and $4.7 billion paid out as dividends. On Sept. 14, the board raised its dividend another 11% to $0.62 a share and authorized the repurchase of another $60 billion in stock (but provided no timeline for the repurchasing).
Microsoft is growing its business and rewarding shareholders. Investors should take notice and consider buying shares.
Investors may be less familiar with Accenture, but it is a large company with a market cap now exceeding $200 billion. Accenture is a worldwide consulting firm helping businesses with information technology (IT). Companies often have aspirations to have more effective IT solutions but lack the technical knowledge to do it. Accenture steps in and brings the idea to fruition.
Accenture wrapped up its 2021 fiscal year in August and reported solid growth. It grew fourth-quarter and fiscal-year revenue 24% and 14%, respectively. Particularly exciting is its cloud consulting business that grew 44% for the fiscal year to $18 billion (although this figure overlaps other services). Accenture is also responsible with its capital; its return on invested capital (ROIC) has been above 30% for each of the last eight quarters.
Accenture raised its dividend by 10% this year and returned $1.47 billion to shareholders -- $915 million in repurchases and $558 million in dividends (at $0.97 a share) -- during the fourth quarter, representing 0.66% of the company.
For fiscal year 2022, Accenture is guiding for more growth than fiscal year 2021. At the midpoint, it believes revenue will grow 20% generating free cash flow of $8.5 billion. It also expects to return $6.3 billion to shareholders. With strong guidance and capital return, Accenture will continue to be a stock income investors should keep for total return potential.
Both companies' stock performance has beaten the market over the past three years, but each significantly outperforms the S&P 500 price when total return is considered.
The only way to achieve these great results illustrated in the graph is to buy and hold the shares, not trade in and out. This allows dividends and share repurchases to compound along with the stock price. Both companies have strong growth ahead and will continue returning capital to shareholders. Investors who want solid growth and income should consider adding Microsoft and Accenture to their portfolios.