Do you dream of living off of dividends? Would you like to wake up to fresh money you didn’t work for or go to sleep with?
Living off of dividends is an amazing lifestyle. But if you want to make sure that you don’t have to go back to the 9-5 grind one day, it’s incredibly important to invest in companies with SAFE dividends.
Want to know which dividend is the safest dividend of all?
I’ll tell you what I think it is, just ahead. But first…
Some people think living off of dividends is a pipe dream. Well, I’m here to tell you that it’s actually a dream come true. It’s extremely possible to live off of dividends, even at a young age. I’d know. I went from below broke at age 27 to financially free at 33 by living below my means and investing in high-quality dividend growth stocks.
Look, I grew up on welfare in Detroit. I don’t have a college degree. My job, before I retired from it in my early 30s, was working as a service advisor at a car dealership. Yet I’m now living off of dividends. And I’m not even 40 years old yet.
So when I tell you how possible and amazing it is to become financially independent and live off of dividends at a young age, it’s coming from personal experience. However, it’s imperative that you put your hard-earned money to work in great businesses.
If you want to make sure that you don’t have to go back to a job you don’t like, you have to buy stocks with super safe dividends.
There are a lot of high-quality companies out there. And there are many super safe dividends to be found. But if I had to name what I think is the safest dividend of all, one name comes to mind first.
It’s Microsoft Corporation (MSFT).
Founded in 1975 by Bill Gates and Paul Allen, it’s now one of the few companies on the planet with a market cap north of $1 trillion. In fact, as I write, it’s the most valuable company in the world by market cap – sitting at right about $1.4 trillion.
Perhaps best known by its infamous operating system, Microsoft is actually a diversified technology company with a high-value suite of products and services. These include PCs, Azure, Office 365, Edge, Bing, LinkedIn, GitHub, Teams, Xbox, and, of course, Windows.
This company is legendary. Its developments across software, hardware, and cloud computing have greatly advanced society and made our everyday lives much easier. There are very few companies that have had such a profound impact on the way people live.
With that kind of impact and reach, it’s not surprising that Microsoft makes a lot of money. Indeed, their profit is off the charts. Their net income was almost $40 billion last fiscal year.
When we look at dividend safety, we want to compare the dividend against profit or free cash flow. We want to know how much profit a dividend consumes.
That’s expressed in percentage terms as a payout ratio.
The lower the payout ratio, the safer a dividend should be.
But one also has to consider the growth of a company and its balance sheet.
Microsoft’s earnings per share on a trailing twelve months basis is $6.00. The quarterly dividend is currently $0.51 per share, which is $2.04 annualized. That puts the payout ratio at 34%, which is incredibly low.
Better yet, the dividend growth is fantastic…
The company has increased its dividend for 18 consecutive years, and the 10-year dividend growth rate is 13.8%. So even though they’re growing the dividend at a double-digit rate, the payout ratio is still really low.
This is possible in part because Microsoft as a business is growing so fast.
Both revenue and earnings per share more than doubled over the last decade – which is highly impressive when you consider the size of this enterprise.
This growth should keep the dividend payout ratio low, even while affording Microsoft the ability to continue handing out sizable dividend increases.
Their foothold in cloud computing, software, and networking is strong. And these are long-term trends that give Microsoft a huge tailwind.
Now, the stock doesn’t offer a high yield. Take a look.
The yield is around 1.1% here. That’s not a lot of income. But in terms of safety, I don’t think it gets any safer.
That safety is further bolstered by one of the best balance sheets in the world. Microsoft is one of only two companies with a AAA-rated balance sheet by Standard & Poor’s. That’s a better rating than the United States of America.
They do have some debt. There’s over $66 billion in long-term debt on the balance sheet as of the end of fiscal year 2019.
However, they also have cash. A lot of cash.
Microsoft was carrying $133 billion in total cash at the end of FY 2019.
That circles their long-term debt more than twice over.
And it means they have one of the most comfortable cushions of safety you’ll find anywhere.
If we put this in perspective, the common stock dividend cost Microsoft slightly less than $14 billion last fiscal year.
This means the company can pay out almost 10 years of its dividend in straight cash – before factoring in that $40 billion in profit they’re raking in. Basically, it’s a bulletproof dividend.
I’m not saying this stock is a BUY right now. With a P/E ratio around 30, it’s not a cheap stock.
But if you want the safest possible dividend, it’s tough to bet against Microsoft.
In my opinion, Microsoft is the safest dividend of all.
-Jason Fieber
