Microsoft (MSFT) announced today that it was boosting its dividend by 20 cents per share, or 25%. Its new dividend will be 80 cents per share, payable quarterly. At today's approximate price of $26.58, that brings the yield to 3%. The highest dividend stock BestCashCow tracks is AT&T which pays approximately 6.35%.
For investors looking for a safe return on their money, Microsoft is an intringuing option. Top 12 month CD rates are in the 1.25% APY range while top 5-year CD rates yield about 2.85% APY according to the BestCashCow rate tables. Money deposited into CDs is FDIC insured while there is no guarantee that an investor won't lose principal investing in Microsoft stock.
Microsoft though looks like a pretty stable bet. The company has $53 billion in cash and generated $4 billion in extra cash in fiscal year 2011 which ended in June. Despite challenges from tablets, Microsoft still dominates the PC market and the PC software market, and has a highlty profitable enterprise business. It's XBox gaming system is growing quickly. There is no reason to suspect that Microsoft will see a drastic decline in any of these businesses in the near future.
The increase in the dividend though is an admission that the company's high growth days are probably over. Its business has matured and it is looking to court more conservative investors.
A comparison of Microsoft to the Nasdaq and the S&P 500 shows that it pretty much trends along with these indexes. Its stock movement seems to confirm that it has achieved mature status. Ten years ago, Microsoft traded around $28 and today its priced at $26. Its low was close to $15 in 2009, during the height of the geat recession. Its current 52-week high was $29.49 and its 52-week low - $23.65.
Of the major tech companies, Microsoft now has the second highest dividend behind Intel, which pays 3.82%. Microsoft generated over twice the profit of Intel (INTC) last year and has a return on average equity of 44.84% versus Intel's 25.16%. Of the major tech companies, including Apple (AAPL), only IBM (IBM)has a higher return on average equity (64.94%) than Microsoft. A more detailed comparison of dividend investing with Microsoft and Intel can be found here.
If you have some cash and don't mind Microsoft stock swinging in a range between 20-30 then it may be a good way to generate income. The company's $53 billion in the bank and enormous profitability make it a pretty attractive investment.