How Microsoft’s Dividend Boost Ties Directly to Its AI Spending

Microsoft raises its dividend as it balances AI spending. (AFP via Getty Images)

Key Points

• Microsoft raises its quarterly dividend by 8% to 98 cents a share, balancing its artificial-intelligence spending with investor returns.
• The dividend increase is modestly below the company’s roughly 10% average increase over the prior five years.
• Microsoft’s capital spending reaches $41 billion in the fiscal fourth quarter and $145 billion for the fiscal year.

Microsoft raised its quarterly dividend as the tech giant balances its massive artificial-intelligence spending with returns to investors.

The company hiked its quarterly dividend by 8%, or 7 cents, to 98 cents a share. On an annualized basis, Microsoft’s dividend jumps to $3.92 a share for a yield of 0.78%.

The dividend increase is modestly below the roughly 10% average increase over the prior five years, but remained mostly consistent with Microsoft’s record of steadily growing its dividend alongside earnings.

While there’s nothing breathtaking about Microsoft’s dividend hike, it does illustrate how Microsoft is attempting to juggle massive AI spending with consistent returns to investors.

The latest dividend hike isn’t quite as robust as usual and comes as Microsoft’s earnings growth outpaces dividend increases. This potentially reflects Microsoft’s preference to retain greater balance sheet flexibility as AI infrastructure investments continue to skyrocket, according to Morgan Stanley.

Microsoft stock declined 0.2% to $495.96 in premarket trading on Wednesday after ending Tuesday down 1.6%.

Microsoft has bet big on its cloud platform, Azure, and its AI assistant tool, CoPilot. The company’s capital spending reached $41 billion in the fiscal fourth quarter and $145 billion for the year. Wall Street thinks investors should brace themselves for heavier AI spending in fiscal 2027.

Microsoft’s move late Tuesday to hike its dividend shows it’s still focused on investors as well.

“We think management views dividends as a permanent commitment,
leaving room for continued share repurchases while balancing elevated AI infrastructure investments,” wrote Morgan Stanley Adam Wood in a research note.

Microsoft also has more than $40 billion remaining in its current share repurchase program, which adds to Microsoft’s return profile.

Microsoft repurchased about $17 billion of stock in fiscal 2026, up from $13 billion in the previous fiscal year.

“We expect buybacks to remain an important component of capital return, though the pace will likely continue to be balanced against Microsoft’s significant AI-related capital requirements,” Wood added.

Morgan Stanley estimated that Microsoft earnings will grow around 19% annually through calendar year 2028 even as AI spending ramps up. With the 0.78% yield after the dividend hike, that supports around a20% total-return profile for Microsoft.

With AI spending worries on the minds of many investors, that type of return over the next two years isn’t too bad.

Write to Kit Norton at kit.norton@barrons.com

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