Many income-focused investors give a lot of weight to an investment's yield. While that makes sense if income is the only goal, it can shortchange those seeking to earn an attractive total return. That's because yield isn't the primary factor driving a stock's total return. What matters more is a company's ability to increase the payout.

Given that growth matters more than yield, investors shouldn't discount Microsoft (MSFT 0.11%) because it offers a low dividend yield (currently slightly less than 1%). The tech titan has an excellent track record of growing its dividend, which should continue.

The power of dividend growth

Dividend stocks are powerful wealth creators. Over the last 50 years, dividend payers have delivered an average-annual total return of 9.2%, according to data from Hartford Funds and Ned Davis Research. That has outpaced the broader market. The equal-weight S&P 500 index has delivered a 7.7% average-annual total return during that period. 

However, there's a huge distinction between dividend stocks. Companies with no change in their dividend policy only delivered a 6.6% average-annual total return. Meanwhile, dividend growers and initiators generated a 10.2% average-annual total return. 

Given this data, dividend investors should focus more on a company's ability to increase the dividend than its current yield since that powers higher total returns.

Microsoft: A dividend-growth juggernaut

Microsoft initiated its dividend two decades ago. The titan has steadily increased its payout over the years. While it hasn't given investors a raise every year, Microsoft currently has a streak of 13 consecutive years of dividend growth. 

It gave investors a 10% raise last September. That continued its strong dividend growth over the past decade:  

MSFT Dividend Chart

MSFT Dividend data by YCharts.

That surging dividend has helped drive strong total returns for Microsoft shareholders. The technology giant has delivered a 27.4% average-annual return over the last decade. That's more than double the S&P 500's total return (12.2% annualized). 

The power to continue growing the dividend

The upward trend in Microsoft's dividend should continue. The tech titan generates enormous cash flows to support shareholder returns, its elite balance sheet, and its growth initiatives. Over the last six months, Microsoft has generated $34.4 billion of cash from operations. It paid $9.7 billion in dividends, giving it a low 28% dividend-payout ratio. The company also repurchased $11 billion of its stock and spent $13.6 billion on capex and acquisitions. 

The company boasts an elite balance sheet. Microsoft ended 2022 with $99.5 billion of cash, equivalents, and short-term investments against $44.1 billion of debt. That cash-rich balance sheet helps back its AAA bond rating, which is higher than the U.S. Government's. 

Microsoft's massive cash flows and strong balance sheet give it tremendous financial flexibility to invest in growing its business. The company has secured two notable investments in recent years to drive growth. It recently extended its partnership with OpenAI (the maker of the uber-popular AI-powered ChatGPT) by making a multiyear, multibillion-dollar investment in that company to accelerate AI breakthroughs. Microsoft is deploying OpenAI's models across its products.   

The technology giant is also working to obtain all the regulatory approvals needed to close its acquisition of videogame maker Activision Blizzard. The $69 billion all-cash deal will help drive the long-term growth of its Xbox entertainment platform. 

These and other growth-related investments should enable Microsoft to continue growing its massive cash flow. That should allow the company to keep growing its dividend.

Microsoft is delivering for dividend investors

Dividend investors shouldn't discount Microsoft's dividend despite its lower yield. The tech titan more than makes up for its low yield with outsized dividend growth. That's helped power jaw-dropping total returns over the years. With more dividend growth likely, Microsoft should be able to continue producing market-beating total returns in the years to come. That makes Microsoft stock a potentially great addition to a dividend-focused portfolio.