Here's Why Microsoft Will Continue Paying Dividends to Investors

Tickers in this article: MSFT

NEW YORK (TheStreet) -- If you are an investor in technology stocks, you know they have been gaining a lot of momentum recently.

That rising tide includes some old boats. For instance, there’s Microsoft . The company’s new CEO, Satya Nadella, has been in the news since replacing Steve Ballmer, tasked with turning the software developer giant into a growth company once again.

Shares, at $44.50, are up 19% for the year to date.

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Microsoft has a history of making its dividend payments, as this chart shows. The company has been a very impressive cash generator and is well known for giving good returns to its shareholders.

Currently, Microsoft's dividend yield is around 2.8% and dividends have increased by 16.4% over the past five years on average.

Payout Ratio

The payout ratio of a company can determine whether or not it is actually paying dividends from profits being earned or if dividends are a false indicator of growth in the company. A payout ratio below 100 means that the company is easily paying the dividends from its earnings; a payout ratio of over 100% indicates a company is paying out dividends more than what its net income is.

To determine the sustainability of dividends, it is crucial to analyze the payout ratio. A relatively higher payout ratio indicates higher chances of the stock not being sustainable. Microsoft currently has a payout ratio  of around 38%, which indicates that the stock is highly sustainable. It is currently paying its dividends from what it is earning and its dividends actually represent growth in the company.

R&D

For a tech firm, research and development is of crucial importance. Microsoft's transition to cloud-based offerings  ensures the company is trying to remain among the leaders in the sector and that growth prospects seem favorable.

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Such situations create a sense of confidence in the company's performance and suggest that returns to shareholders will be sustained by the company since they would be a continuum of growth in the company.