Battle of dividend stocks: Microsoft vs. Apple

These companies pay billions in cash to shareholders every year — and those payouts keep increasing.

| More on:
Dividend stocks represented by paper sign saying dividends next to roll of cash

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. 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.

Microsoft

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

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 Fool.com. All figures quoted in US dollars unless otherwise stated.

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.

More on International Stock News

AI written in blue on a digital chip.
International Stock News

1 unstoppable artificial intelligence (AI) stock you'll want to own next year

This AI giant is exiting 2025 with great momentum across all of its businesses.

Read more »

Legendary share market investing expert and owner of Berkshire Hathaway, Warren Buffett.
International Stock News

As Warren Buffett steps down from the CEO role at Berkshire Hathaway, it's the end of an era. 3 powerful pieces of his advice to remember.

Buffett may be on the way out, but his advice is tried and true.

Read more »

Hand with AI in capital letters and AI-related digital icons.
International Stock News

Which AI chip stock is the better buy for 2026: Nvidia or Alphabet?

Some believe Alphabet's success with its TPU chips could make it a challenger to Nvidia's data center dominance.

Read more »

Man charging an electric vehicle.
International Stock News

Should you buy Tesla while it's below $500?

Tesla is betting on robotics and autonomy, but it's a risky move as the company's profits fall.

Read more »

A delivery man wearing a cap and smiling broadly delivers two boxes stacked on top of each other at the door of a female customer whose back can be seen at the edge of a doorway.
International Stock News

My surprising top "Magnificent Seven" stock pick for 2026

Being down doesn't mean this tech giant is out of the picture.

Read more »

A bald man in a suit puts his hands around a crystal ball as though predicting the future.
International Stock News

1 prediction for Nvidia in 2026

CEO Jensen Huang already revealed what could spark the next run for Nvidia stock.

Read more »

A woman looks questioning as she puts a coin into a piggy bank.
International Stock News

Should you buy this "Magnificent Seven" stock before 2026?

Alphabet remains one of the top growth stocks to buy.

Read more »

A young woman sits with her hand to her chin staring off to the side thinking about her investments.
International Stock News

Where will Nvidia stock be in 5 years?

Nvidia's success is tied to the spending plans of others.

Read more »