Microsoft Shifts Capital Return Strategy, Favoring Dividends Over Stock Buybacks

Microsoft has made a significant shift in its capital return strategy, favoring dividends over stock buybacks. In fiscal 2021, the company spent more money buying back its own stock than it paid out in dividends, but this trend has reversed in recent years.

In fiscal 2026, Microsoft declared $27.0 billion in dividends, surpassing the $16.7 billion spent on share repurchases under the company's buyback program. This shift is not surprising given the company's growing net income and increasing dividend payments per share.

The quarterly dividend of $0.91 per share has grown by about 10% over the past two years, and the payout ratio sits near 20%. This means that Microsoft can continue to raise its dividend in the future without straining its finances.

While some may think that stock buybacks are a more effective use of capital than dividends, it appears that Microsoft is using the former primarily to offset dilution caused by employee stock awards. The share count has only decreased by about 1% over the past five years, despite the company's significant growth in net income and earnings per share.