This Low-Yield Tech Giant Just Boosted Its Dividend By 10% — Analysts See Major Upside Ahead

The technology sector isn't known for its dividends.

For one, many tech companies prioritize reinvesting their profits into research and development to fuel innovation and stay competitive. The industry also is characterized by rapid growth and evolution, and companies often prefer to retain earnings to fund expansion and new ventures.

But one tech company has been delivering not just steady but increasing dividends to investors year after year: Microsoft Corp. MSFT

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Microsoft has stood the test of time. It initially rose to prominence with its MS-DOS and Windows operating systems. Over the decades, the company diversified its offerings, introducing products like the Microsoft Office suite, the Azure cloud platform and hardware such as the Surface devices and Xbox gaming consoles.

On Sept. 19, Microsoft announced that its board declared a quarterly dividend of 75 cents per share, representing a 10% increase from the company's previous quarterly dividend of 68 cents per share.

At the current share price, the new quarterly payout translates to an annual yield of 0.94%.

The yield may not seem like much, but note that Microsoft has raised its dividend every year since 2010. In just the last five years, the company's quarterly payout per share has increased by 63%.

If the company continues this track record, it would allow shareholders to earn higher yield-on-cost over time.

Not Just An Income Stock

Microsoft shareholders have earned more than just dividends.

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Shares have climbed 33% in 2023, bringing the company's market cap to $2.38 trillion.

One of the reasons behind investor enthusiasm is artificial intelligence (AI) — the hottest trend in the tech sphere this year.

Microsoft has made notable investments in OpenAI, whose chatbot ChatGPT has taken the internet by storm. In April, Microsoft CEO Satya Nadella said, "The age of AI is upon us, and Microsoft is powering it."

Microsoft Azure — the software giant's cloud computing arm — is OpenAI's exclusive cloud provider. Nadella said that Microsoft will deploy OpenAI's models across its consumer and enterprise products.

Bernstein analyst Mark Moerdler has an Outperform rating on Microsoft and a price target of $400. Meanwhile, Redburn Partners analyst Alex Haissl has a Buy rating on the company, envisioning a higher price target of $440. Moerdler and Haissl's targets imply potential upside of 25% and 37%, respectively.

High-Yield Options

If you are looking for high-yield investments, there are plenty of options available.

For instance, while higher interest rates have sent shockwaves across the economy, they also mean that people can finally earn some return on their savings. These days, some high-yield savings accounts pay over 5% annual percentage yield (APY). 

Investors can also find high-yield names in the stock market. Sectors like utilities and consumer staples are traditionally known for paying reliable dividends.

Real estate investment trusts (REITs) present another option. REITs are required by law to distribute at least 90% of their taxable income to shareholders as dividends. This requirement makes them appealing to investors looking for passive income.

These days, there are plenty of REITs trading in the stock market so it's easy to invest in them. And if you don't want the volatility associated with publicly traded REITs, there are also crowdfunding platforms that allow retail investors to invest directly in rental properties with as little as $100 through the private market.

Remember, in any investment, yield is just one factor. Investors should also take into consideration the inherent risks, stability and potential for long-term growth.

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