This Is My Favorite Dividend Stock (by Far)

Core Viewpoint - Microsoft is not a high-yield dividend stock, with a yield currently below 1%, but it offers dependable growth, financial strength, and consistent cash returns [1][2] Financial Performance - Microsoft closed fiscal 2025 with a revenue increase of 15% to $281.7 billion and operating income growth of 17% to $128.5 billion, with Q4 results boosted by a 39% year-over-year growth in Azure and other cloud services [4] - The intelligent cloud segment's total revenue reached $29.9 billion, up 26% year over year [4] Dividend Coverage - The current quarterly dividend is $0.83 per share, translating to an annual payout of $3.32, with a payout ratio of approximately 24% against diluted EPS of $13.64, allowing for significant reinvestment [5] - Microsoft returned over $37 billion to shareholders in fiscal 2025 through dividends and buybacks, with $24 billion paid in dividends [7][8] Dividend Growth and Consistency - The board raised the quarterly payout by 10% last September, aligning with a 10-year average growth rate for dividends, reflecting management's confidence in future cash flows [6] - The dividend consumes a modest portion of earnings, with cash generation expected to rise due to steady subscription growth [12] Financial Strength - Microsoft possesses a fortress balance sheet with AAA/Aaa ratings from S&P Global and Moody's, which lowers financing costs and supports durable cash generation [9] - Management plans over $30 billion in capital expenditures for fiscal 2026, primarily for AI and cloud capacity expansion, while continuing to return cash to shareholders [10] Business Model Resilience - Microsoft's revenue model is subscription-heavy and enterprise-focused, providing a recurring revenue engine that is less cyclical compared to ad-driven or hardware-only tech companies [11] - Total cloud-based revenue reached $46.7 billion, up 27%, underscoring the resilience of the business model [11] Future Outlook - The dividend growth is not dependent on perfect economic conditions, allowing for flexibility in buybacks and dividend increases based on growth trends [14] - The company is expected to maintain a conservative yet growing dividend, backed by a strong business franchise [16]