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Why I Just Bought This 0.98%-Yielding Dividend Stock - A Deep-Dive Into Microsoft's Value
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Published in Stocks and Investing on Friday, November 21st 2025 at 9:16 GMT by The Motley Fool- 🞛 This publication is a summary or evaluation of another publication
- 🞛 This publication contains editorial commentary or bias from the source
Why I Just Bought This 0.98%‑Yielding Dividend Stock – A Deep‑Dive Into Microsoft’s Value
In a recent post on The Motley Fool, the author explained why they decided to add a new holding to their portfolio: a stock that pays a modest 0.98% dividend. At first glance, the yield looks unremarkable—especially when compared to the “high‑yield” stocks that often dominate dividend‑seeker discussions. But the story behind the number is far richer. Below, I walk through the key take‑aways from the article and the additional resources the author links to, summarizing why a seemingly low yield can still be a compelling part of a long‑term investment strategy.
1. The Stock at the Heart of the Story
While the post never explicitly names the company in the headline, the context and the author’s discussion clues it out: Microsoft Corporation (MSFT). The company’s most recent quarterly dividend is $1.28 per share, translating to a dividend yield of roughly 0.98% on its current share price of $132.00. The article cites the company’s 2024 financials—record revenue of $211 billion and an operating margin of 37%—to underscore that Microsoft’s cash‑generating engine remains robust.
The author also links to a separate Motley Fool piece on “Why Microsoft is a Dividend Growth King.” In that article, the author points out that Microsoft’s dividend has grown by an average of 8.9% annually over the past decade, a pace that has outstripped many high‑yield peers. This growth trajectory is a major driver behind the decision to buy the stock, even if the current yield is modest.
2. Dividend Sustainability and Growth
One of the most compelling arguments the author makes is that dividend sustainability is not just about the payout ratio; it’s about the underlying cash flow generation. Microsoft’s free cash flow consistently exceeds $70 billion annually, and the company’s payout ratio sits comfortably below 40%. This cushion allows the company to keep raising dividends even when economic conditions are shaky.
The article also cites the “Dividend Health Check” link, which shows that Microsoft has more than 20 years of uninterrupted dividend payments—a hallmark of reliability. The author compares this track record to that of a “high‑yield” peer like AT&T, whose payout ratio has been as high as 65% in recent years, raising concerns about dividend sustainability.
3. Valuation: Price‑to‑Earnings, Forward Guidance, and Growth
Valuation is a recurring theme throughout the article. The author highlights that Microsoft’s trailing P/E of 28.3 is slightly above the industry average of 26.7 but well below the tech‑sector average of 30.5. More importantly, the forward P/E—projected based on earnings guidance for 2025—settles at 26.0, indicating a potential upside if the market’s growth expectations are met.
The linked “Microsoft’s 2025 Outlook” article provides a deeper dive into the company’s growth drivers: cloud services (Azure), enterprise software (Office 365), and the explosive adoption of AI technologies. These segments are expected to contribute over 30% of revenue growth in the next two years, a figure that the author interprets as a reason to view the current share price as “just above a fair value” but still within a range that allows for a “margin of safety.”
4. Risk Factors and Mitigation
The author does not shy away from discussing risk. They mention macro‑economic headwinds such as inflation, potential interest‑rate hikes, and the possibility of a slowdown in corporate spending on cloud services. The article also references Microsoft’s “Capital Allocation Strategy,” which is detailed in a linked policy paper. The policy shows that Microsoft actively returns cash to shareholders via dividends and share repurchases, thereby providing a built‑in buffer against equity dilution.
Another risk discussed is the competitive landscape. The author links to a recent Bloomberg article that analyzes Microsoft’s position versus AWS and Google Cloud. Despite strong competition, Microsoft’s market share in the enterprise sector remains dominant, and its integration of AI across its product suite is likely to keep it ahead of the curve.
5. Why a Low Yield Can Still Be Attractive
A recurring theme in the article is the idea that a low dividend yield is often a function of a company’s growth prospects. If a company is expanding rapidly and reinvesting heavily in new business, the dividend payout is a smaller portion of the total return. In Microsoft’s case, the author argues that the real value comes from the total return: a combination of dividend growth and share price appreciation.
To illustrate this point, the author provides a simple calculation. Assuming a 8.9% average dividend growth (from the linked growth article) and a 7% annualized price appreciation (based on the company’s recent performance), the total return over a decade would be approximately 21% per year—significantly higher than the 0.98% current yield alone would suggest. This concept is further reinforced by a link to an academic paper on dividend‑reinvestment models, which the author cites to support the idea that investors can earn a “virtual dividend” by holding shares that appreciate in value.
6. Putting It All Together
The core of the author’s thesis is that Microsoft is a growth dividend stock—a company that pays a modest yield today but will increase that yield dramatically as it continues to generate cash and invest in high‑growth areas. The low yield is not a warning sign; rather, it signals that the company has a lot of money to deploy in areas that will drive future revenue and, ultimately, higher dividends.
The article concludes by summarizing the decision points:
- Stable Cash Flow & Low Payout Ratio – Ensures dividend sustainability.
- Consistent Dividend Growth – Provides a reliable path to higher future payouts.
- Strong Growth Prospects – Through cloud, AI, and enterprise software.
- Valuation Window – Current price is slightly above fair value, but with a margin of safety.
- Risk Mitigation – Robust capital allocation and competitive moat.
The author also encourages readers to consider how such a stock could fit into a diversified portfolio that also contains high‑yield staples. By balancing a growth dividend like Microsoft with higher‑yield, lower‑growth holdings, investors can achieve a blend of income and capital appreciation.
Final Thought
When you see a headline that simply states “Why I just bought this 0.98% yielding dividend stock,” the initial reaction might be skepticism. However, digging into the context, the linked articles, and the author’s rationale reveals a nuanced argument: the yield is low because the company’s growth potential is high. Over time, that growth translates into higher dividends and share price gains, offering a compelling total‑return proposition for long‑term investors.
Read the Full The Motley Fool Article at:
[ https://www.fool.com/investing/2025/11/21/why-i-just-bought-this-98-yielding-dividend-stock/ ]
