Battle of dividend stocks: Microsoft vs. Apple

These companies pay billions in cash to shareholders every year — and those payouts keep increasing.
The post Battle of dividend stocks: Microsoft vs. Apple appeared first on The Motley Fool Australia. –

This article was originally published on All figures quoted in US dollars unless otherwise stated.

Dividend stocks represented by paper sign saying dividends next to roll of cash

This article was originally published on All figures quoted in US dollars unless otherwise stated.

Arguably two of the greatest dividend stocks are from tech giants Microsoft Corporation (NASDAQ: MSFT) and Apple Inc (NASDAQ: AAPL). Though they currently have low dividend yields, with Microsoft’s at 1% and Apple’s at 0.7%, investors looking for income shouldn’t overlook these income-producing investments. Not only do both companies regularly increase their dividends, but their payouts are likely to grow substantially in the coming years.

But which of these two dividend payers is the better investment?

Let’s take a look.


The coronavirus pandemic negatively affected many businesses, with some popular dividend-paying companies even reducing or suspending their quarterly dividends. Microsoft, however, didn’t skip a beat.

The tech giant announced a 10% increase to its quarterly dividend last September, increasing the payout to $0.56 every quarter — or $2.24 annually. It was the company’s 16th consecutive annual dividend increase.

Of course, it wasn’t surprising to see Microsoft keep up its long history of annual dividend increases. The company easily affords its dividends. Of its $45 billion of fiscal 2020 free cash flow (cash flow left over after both regular operating expenses and capital expenditures are accounted for), for instance, only $15 billion went to dividends. Similarly, the company’s payout ratio, or the percent of net income it pays out in dividends, was just 34% in fiscal 2020.

With a low payout ratio and an average annual dividend increase growth rate of 9% over the past three years, investors should expect more strong growth from Microsoft’s dividend in the years ahead.


Apple may have a lower dividend yield than Microsoft, but its payout ratio of just 22% is meaningfully more conservative. In other words, Apple’s dividend has a lot more room to grow in the coming years.

Furthermore, the company’s robust free cash flow of $73 billion in fiscal 2020 is significantly greater than Microsoft’s — and the gap between Apple’s free cash flow and Microsoft’s has widened over the trailing-12-month period. During this timeframe, Apple’s free cash flow was $80.2 billion, compared to Microsoft’s $50.4 billion.

Of course, Apple commands a higher value than Microsoft. The company’s market capitalisation is $2 trillion compared to Microsoft’s $1.7 trillion. But based on this financial analysis, Apple looks like its worth this greater market cap. It’s arguably the more promising and resilient dividend stock. However, its win may only by a narrow margin, if not even debatable. Both tech stocks look like worthy considerations for investors looking to buy stocks poised to produce meaningful income over the long haul.

This article was originally published on All figures quoted in US dollars unless otherwise stated.

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Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Apple and Microsoft and recommends the following options: short March 2023 $130 calls on Apple and long March 2023 $120 calls on Apple. The Motley Fool Australia has recommended Apple. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Battle of dividend stocks: Microsoft vs. Apple appeared first on The Motley Fool Australia.

This article was originally published on All figures quoted in US dollars unless otherwise stated.

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