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Microsoft: AI Dividend Play with Growing Yield

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  Published in Stocks and Investing on Tuesday, December 16th 2025 at 7:48 GMT by The Motley Fool

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A Quick Guide to Three Dividend‑Paying AI Stocks Worth Adding to Your Portfolio

In the wake of the explosive growth in artificial intelligence (AI), investors are looking for companies that can offer both the upside of cutting‑edge technology and the stability of a reliable dividend stream. The Motley Fool’s recent article, “3 Dividend‑Paying Artificial Intelligence Stocks to Add to Your Portfolio,” zeroes in on three such firms—Microsoft, IBM, and Qualcomm—explaining why they are compelling picks for investors who want a taste of the AI revolution without sacrificing the comfort of regular income.

1. Microsoft (MSFT)

Why Microsoft is an AI Dividend Play

Microsoft’s dominance in the cloud and software space has made it a natural leader in AI. The company’s Azure AI platform powers everything from natural‑language chatbots to computer‑vision services for other businesses. Additionally, Microsoft’s partnership with OpenAI—owner of GPT‑4—ensures it remains at the forefront of generative AI development.

Dividend Profile

• Yield: Roughly 0.9% (as of late‑2025)
• History: 20+ years of dividend growth, averaging a 6% annual increase over the past decade.
• Capital Allocation: Consistently reinvests a sizable portion of its free cash flow into product development while maintaining a healthy payout ratio (~35%).

Valuation Snapshot

• Price‑to‑Earnings (P/E): ~28x, which is higher than the broader S&P 500 but justified by its AI moat.
• Price‑to‑Book (P/B): ~12x, reflecting its strong intangible assets.

Risk & Rewards

• Risks: Potential slowdown in cloud adoption, regulatory scrutiny on big tech, and competition from other AI‑focused cloud providers.
• Rewards: Continued AI product adoption, a robust ecosystem that keeps customers locked in, and a dividend that will likely grow with the company’s earnings.

2. International Business Machines (IBM)

Why IBM is an AI Dividend Play

IBM has long been a pioneer in enterprise IT and has recently pivoted to “AI‑as‑a‑service” via its IBM Watson platform. While Watson’s initial hype faded, IBM has refocused its AI strategy around industry‑specific solutions, data‑analytics, and hybrid‑cloud integration—areas that require massive compute and have high switching costs.

Dividend Profile

• Yield: Around 4.8% (the highest among the three picks).
• History: Consistent dividend since the 1960s, with a 20‑year streak of consecutive increases.
• Payout Ratio: Approximately 70%, indicating strong cash‑flow generation.

Valuation Snapshot

• P/E: ~12x, well below the tech average, indicating a discount relative to its AI potential.
• P/B: ~4x, reflecting a healthy balance sheet and lower leverage.

Risk & Rewards

• Risks: Legacy IT costs, slower-than-expected AI revenue growth, and intense competition from cloud‑native AI firms.
• Rewards: Steady cash flow, a growing AI and cloud business that benefits from long‑term enterprise contracts, and a high dividend that provides a cushion during market downturns.

3. Qualcomm (QCOM)

Why Qualcomm is an AI Dividend Play

Qualcomm is the world’s leading provider of mobile chipsets and has invested heavily in AI‑accelerated silicon for smartphones, automotive, and edge‑computing devices. Its 5G and upcoming 6G chip architectures are heavily integrated with AI capabilities, positioning Qualcomm to benefit from the next wave of connectivity.

Dividend Profile

• Yield: Roughly 2.7%.
• History: Long history of dividend growth, with a 15‑year streak of annual increases.
• Payout Ratio: Around 55%, indicating a balanced approach between shareholder returns and capital reinvestment.

Valuation Snapshot

• P/E: ~23x, somewhat elevated but reasonable given its growth prospects.
• P/B: ~6x, reflecting significant intangible assets tied to intellectual property.

Risk & Rewards

• Risks: Dependence on the smartphone market, trade tensions affecting supply chains, and competition from new AI silicon players.
• Rewards: Securing a lead in AI‑enabled hardware, expanding into automotive and IoT, and a dividend that supports long‑term shareholder value.

How These Stocks Fit Into a Dividend‑Focused AI Strategy

1. Diversification Across Segments
   The trio covers software (Microsoft), services (IBM), and hardware (Qualcomm). This breadth ensures exposure to all sides of the AI ecosystem without excessive concentration risk.

2. Compounding Dividend Growth
   All three have strong track records of raising dividends. By reinvesting dividends (or using them as passive income), an investor can accelerate portfolio growth.

3. Balance Between Growth and Income
   While Microsoft’s yield is modest, its high growth prospects make it a growth‑oriented income stock. IBM’s higher yield offers income for risk‑averse investors, and Qualcomm’s moderate yield delivers a middle ground.

Practical Tips for Adding These Stocks

Takeaway

The Motley Fool article underscores that AI isn’t a “single‑track” growth play; it can also be a source of reliable income. By focusing on Microsoft, IBM, and Qualcomm, investors can tap into AI’s upside while enjoying dividends that offer stability. The key is to blend patience—allowing dividends to grow over time—with vigilance, keeping an eye on how each company evolves in the fast‑changing AI landscape.

For further reading, check out the Motley Fool’s “Why Dividend Stocks Make Great Long‑Term Holdings” and the “AI’s Impact on Corporate Profitability” series, which dive deeper into the mechanics behind the numbers presented here.