Microsoft (MSFT 1.44%) has been synonymous with growth over the years. And it has also been paying -- and increasing -- its dividend for many years.
This year is an encouraging one for Microsoft. The stock is soundly beating the S&P 500, the company has some new growth opportunities that are emerging, and the business simply hasn't looked better than it does right now. Given all that, a dividend hike is all but a lock next month, and it could only be a question of how big the increase will be.
Microsoft typically hikes its dividend in September
The tech giant has been consistently increasing its dividend payments since 2006. And like a seasoned dividend growth stock, it has developed a pattern for when it normally announces increases: every September.
On Sept. 20, 2022, Microsoft announced its most recent dividend increase, raising it by 10% to its current $0.68 per share per quarter. Over the past decade, the company has been generous with its dividend increases:
MSFT dividend data by YCharts.
Could an even bigger dividend hike be coming for the stock this year?
Microsoft has been fairly consistent even in the size of its dividend increases. From a quarterly payout of $0.42 five years ago, it has risen by 62% since then, averaging a compound annual growth rate of just over 10%.
That suggests that a 10% rate hike is typical for Microsoft. And that's the most likely scenario this time around. But there's also the chance that given some more-favorable growth prospects, the business could be inclined to be a bit more generous.
It has invested billions into ChatGPT, the popular chatbot, as it looks to bolster its artificial intelligence (AI) offerings. And that could give it significant growth opportunities to pursue in the long run.
One example is through its Microsoft Office suite of apps, which is getting AI features, and that can lead to higher prices. Plus, its pending acquisition of video game maker Activision Blizzard is showing promise of coming to completion soon.
There are some catalysts on the horizon that can drive more earnings growth. And another reason the company could announce a bigger increase this time around is that its payout ratio is fairly low compared to previous years:
MSFT payout ratio data by YCharts.
There's plenty of room for the company to budget in a larger-than-normal rate hike and reward investors for sticking with the business. Although that's not to say that they haven't been rewarded already: The stock is up 34% this year, which is far better than the S&P 500 with its 16% gains.
Should you buy Microsoft's stock for its dividend?
Microsoft is a great growth stock that can also make for a solid dividend investment over the long haul. Its 0.8% yield may not be all that exciting, but the continued growth in the business and the growth in its payout are what could make this a worthwhile investment to hang on to for years and even decades.
A big rate hike could happen this year. But even if it doesn't, the tech company has been generously raising its payouts, and I'm confident that could continue for the foreseeable future given how much growth is still on the horizon for Microsoft.
