When investors think of top dividend stocks, it's not usually tech stocks that come to mind. However, there's one large tech giant that's also a big player in artificial intelligence (AI) that's become a top dividend growth stock in recent years, and that's Microsoft (MSFT +0.99%).
The company recently raised its payout yet again, and it has risen significantly over the past decade. Here's why this might be an underrated dividend stock to buy for the long haul.
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The low dividend yield can be misleading
If investors are screening for dividend stocks based on their yields, it can be easy to overlook Microsoft, whose yield is around just 0.8%. The reality, however, is that if not for stellar returns over the years, its yield would be far higher than it is right now.
Five years ago, the stock was trading at around $300. At that price, it would be yielding around 1.3% based on its current dividend, which is higher than the S&P 500 average yield of about 1.1%. Microsoft's stock has risen 65% since then. Unfortunately, however, as the share price rises, the dividend yield comes down. But it's a trade-off investors are likely more than happy to make.
Microsoft has also been significantly raising its dividend over the years, due to its strong performance. Last week, it announced an increase of 8%, now paying investors $0.98 per share each quarter.
A decade ago, the tech stock paid its shareholders $0.39 per share, meaning its quarterly payout has risen by a little over 151% since then. Microsoft has been paying and growing its dividend for decades now, but much of the attention the stock gets these days centers on its AI-related growth prospects.
NASDAQ: MSFT
Key Data Points
Microsoft stock looks like a no-brainer buy right now
This year has been a bit of a challenging one for Microsoft, as the market has been bearish on software stocks as a whole. Although it has rallied since it last reported strong earnings, its year-to-date gains remain a fairly modest 2%.
The good news is that for long-term investors, now may be an opportune time to buy the stock, as it's trading at 27 times its trailing earnings, which isn't an overly high valuation for a leading tech giant with promising growth opportunities driven by AI.
Between the long-term stability Microsoft offers, its modest valuation, growing dividend income, and tremendous growth prospects, it's a stock that can be an excellent fit in any portfolio.
