Key Points
Microsoft (NASDAQ:MSFT) has lagged the broader market over the past 12 months, as some investors fear that the artificial intelligence (AI) revolution will eventually decrease demand for the company’s services. However, there are still many things to like about the tech leader, including its dividend program. In fact, Microsoft recently announced it was raising its dividend by 8%. How does the company’s income program compare to those of its similarly-sized peers that are members of the Magnificent Seven? Let’s find out.
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Microsoft's attractive dividend program
On Sept. 15, Microsoft announced that it was increasing its quarterly dividend per share to $0.98. It's worth noting that even before this increase, the company's dividend was much higher than the average for the Magnificent Seven members with dividend programs, including Meta Platforms, Apple, Alphabet, and Nvidia.
In fact, the next highest quarterly dividend per share is Meta's $0.525, a little over half of Microsoft's new $0.98. Of course, this is a per-share metric and therefore doesn't tell us much. Since share prices differ, a lower dividend per share could still equate to a higher yield. But Microsoft has averaged a higher yield than its peers in this group over the past decade, and it still beats them in this category.
We can also look beyond this metric. And once we do, we see a similar picture. For instance, Meta and Alphabet have only been paying dividends for a few years. Apple and Nvidia are longtime dividend payers, but neither has a track record of dividend growth as impressive as Microsoft's. Although Nvidia recently increased its dividend significantly, it went many years without a single annual hike.
That's not the case with Microsoft, which has grown its dividend regularly for over a decade. Apple also has, but Microsoft's dividend growth has been more impressive over the past 10 years. Further, Microsoft has a cash payout ratio (the percentage of cash flow paid as dividends) of 39.5%, compared to Apple's 15.6%. Generally, the lower a cash payout ratio, the better. But when it is too low, it can indicate that the company has other priorities, including some that may also benefit investors, such as share buybacks.
That might be the case with Apple. Microsoft's cash payout ratio, on the other hand, is well within a healthy range. The bottom line: Microsoft appears to have a much stronger dividend program than its peers in the Magnificent Seven.
Can the business support more dividend growth?
If the bears are right and Microsoft's services eventually experience significantly lower demand due to AI disruption, the company's dividend program may suffer as well. But how likely is that? In my view, not very. Consider Microsoft's latest financial results for the fourth quarter of its fiscal year 2026, which ended June 30. Microsoft's revenue increased by 18% year over year to $90 billion. The company's non-GAAP earnings per share (which excludes the impact of investments in OpenAI) were $4.74, up 23% compared to the year-ago period.
Of course, we can't make too much out of a single quarter. But Microsoft's update showed plenty of signs of strong, sustained demand for its services, particularly in its cloud business. Microsoft Cloud revenue came in at $59.3 billion, up 27% year over year, and the company ended the period with $678 billion in commercial remaining performance obligations, 84% higher than the prior-year quarter. As management pointed out, AI is playing a key role in boosting cloud revenue, and there is more where that came from, judging by Microsoft's significant backlog.
The company is also showing that it can coexist with AI. Microsoft has launched various AI agents that cater to its clients' needs. Improving its services through AI can enable the company to continue capitalizing on the AI revolution over the medium term, potentially leading to consistent revenue and earnings growth. Microsoft could also see improved margins as it increasingly relies on custom AI chips, which can lower its AI computing costs. Microsoft has survived several technological revolutions over its long and storied history.
AI is unlikely to be its undoing. Lastly, we could point to Microsoft's rock-solid balance sheet. The company boasts an AAA credit rating -- the highest possible rating -- from S&P Global, strong evidence that it is more than capable of meeting its financial obligations. All of these factors and more highlight the strength of Microsoft's underlying operations and its excellent prospects in cloud computing and AI. And with a business that healthy, we can expect consistent dividend growth for a long time.
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Prosper Junior Bakiny has positions in Alphabet, Meta Platforms, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.
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