Dividend stocks are in the limelight this year as many tech companies have joined the dividend club since the start of 2024. In addition to this, global companies have distributed a record amount in dividends last year. Retail investors are always on the lookout for income stocks. For this reason, we have analyzed the 15 Best Quality Dividend Stocks to Buy According to Reddit in a new article. In this article we are going to take a look at whether Microsoft Corporation (NASDAQ:MSFT) is the best quality dividend stock to buy according to Reddit.
Microsoft Corporation (NASDAQ:MSFT)
Microsoft Corporation (NASDAQ:MSFT) is a Washington-based multinational technology company that is mainly known for its Windows operating systems. In addition to this, the company also offers a wide range of services through its cloud-computing platform. Microsoft Corporation (NASDAQ:MSFT) was the most popular company among elite funds at the end of Q4 2023, with 302 hedge funds holding stakes in the company, as per Insider Monkey’s database. The collective value of these stakes is over $87.3 billion.
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Microsoft Corporation (NASDAQ:MSFT) is a Leader in Technology and Innovation
Microsoft Corporation (NASDAQ:MSFT) has revolutionized both personal and business computing with its products for the software industry. The company’s Azure cloud computing platform is widely gaining momentum among business professionals. Its revenue from cloud services is a significant contributor to its total earnings. In the company’s most recent quarter, it reported a 23% year-over-year growth in its cloud revenue at over $35 billion.
Vulcan Value Partners mentioned Microsoft Corporation (NASDAQ:MSFT) in its Q1 2024 investor letter. Here is what the firm has to say:
“Microsoft Corporation (NASDAQ:MSFT) is the world’s largest software company with a broad range of offerings including Microsoft office, gaming, Azure cloud computing, LinkedIn, and more. It was a material contributor for the second consecutive quarter, and we discussed it at length in last quarter’s letter. The company continues to execute well.”
Microsoft’s Strong and Stable Dividend Growth
Where tech companies mainly prefer reinvesting profits into growth and innovation, Microsoft Corporation (NASDAQ:MSFT) changed the paradigm and initiated its dividend policy in 2003 with a per-share dividend of $0.08. The company has been growing its payouts for the past 18 consecutive years, currently offering a quarterly dividend of $0.75 per share. In addition to this, the company’s 5-year average dividend growth rate comes in at 10.23%. With a payout ratio of 25.3%, Microsoft Corporation (NASDAQ:MSFT)’s dividend is also sustainable. This means that the company distributes less than one-third of its profits to shareholders as dividends.
Microsoft’s Financial Health Makes it a Dividend Star
Microsoft Corporation (NASDAQ:MSFT) recently announced its fiscal Q3 2024 earnings and reported revenue of roughly $61.8 billion, which showed a 17% growth from the same period last year. The revenue not only showed growth but also beat analysts’ estimates by $1.01 billion. Its operating income amounted to $27.6 billion, up 23% from the third quarter of 2023. During the quarter, the company generated $32 billion in operating cash flow, up from $24.4 billion in the prior year period. The company’s solid cash position enabled it to uphold its commitment to shareholders by returning $8.4 billion to them through dividends and share repurchases in Q3 2024.
Microsoft Corporation (NASDAQ:MSFT)’s Dividend Yield Misses the Mark
While Microsoft Corporation’s (NASDAQ:MSFT) dividend is strong and sustainable, the stock’s dividend yield tends to come up short when compared to some other high-yield dividend stocks in the market. As of May 18, the stock has a dividend yield of 0.71%, which is less than a 1.3% yield for the S&P 500. The low dividend yield does not satisfy income investors, who seek regular income on their dividend investments. The stock can be added to a diversified dividend portfolio but this means missing out on other high-yield dividend stock opportunities.
Reddit’s Take on Microsoft’s Future Prospects
According to the Reddit community, Microsoft is currently offering strong financial health along with stable dividend growth. However, some Redditors expressed concerns about the stock being modestly overvalued. The stock is currently trading at a P/E multiple of 36.5x, which is seen as too high by some. Moreover, its competitive industry may push the company to prioritize capital expenditure over dividends to remain relevant.
Is Microsoft Corporation (NASDAQ:MSFT) the Best Quality Dividend Stock to Buy According to Reddit?
Microsoft Corporation (NASDAQ:MSFT) is picked by Reddi readers as the best quality dividend stock due to its financial health and consistent dividend growth. That said, if you are concerned about its relatively low dividend yield and high valuation you should consider other high-yield dividend stocks on our list of the 15 Best Quality Dividend Stocks to Buy or 5 Undervalued Stocks That Just Raised Their Dividends. If you are looking for an AI stock that is as promising as Microsoft but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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.Disclosure. None. This article is originally published at Insider Monkey.