Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Microsoft Corporation (MSFT), Apple Inc. (AAPL): Which Tech Giant Makes a Better Dividend Stock?

Page 1 of 2

Once the Street’s hottest growth stories, Microsoft Corporation (NASDAQ:MSFT) and Apple Inc. (NASDAQ:AAPL) are now undeniably dividend stocks. But which tech giant offers dividend investors better prospects? Given Microsoft’s recent decision to boost its dividend by 22%, as well as Apple’s price change, dropping from $500 to about $460 since the company launched its new iPhones, the dividend battle between the two is as heated as ever.

To identify the winner, let’s first see how the two companies face off on key metrics used to analyze dividend stocks.

Dividend yield

Microsoft Corporation (NASDAQ:MSFT)’s move to boost its dividend significantly improves the company’s dividend yield, from 2.8% to 3.4%. Apple Inc. (NASDAQ:AAPL)’s yield trails meaningfully behind at 2.7%.

Apple Inc. (NASDAQ:AAPL)

Payout ratio

Of course, there’s more to dividend stocks than dividend yield. Investors want to ensure that a dividend is sustainable. Analyzing a company’s payout ratio helps an investor gauge a dividend’s durability.

A payout ratio is simply a company’s annualized dividend divided by its annualized earnings. The lower the ratio, the less likely the company will decrease the dividend if earnings take a tumble. Additionally, the lower the payout ratio, the more room the company has to increase the dividend going forward.

Apple Inc. (NASDAQ:AAPL)’s payout ratio, at 28%, is slightly better than Microsoft Corporation (NASDAQ:MSFT)’s, at 36%. But both are impressively low. Consider dividend stalwarts Waste Management and Johnson & Johnson, with payout ratios of 80% and 56%, respectively.

Cash hoard

Apple Inc. (NASDAQ:AAPL) boasts significantly more cash than Microsoft Corporation (NASDAQ:MSFT) — $146 billion compared to Microsoft’s $77 billion. On a per-share basis the playing field is a bit closer: Apple’s cash hoard accounts for about 35% of its share price and Microsoft’s cash accounts for about 28% of its share price. Still, Apple’s cash per share is meaningfully higher than Microsoft’s.

Managing expectations

With both companies scoring closely on basic dividend metrics, we need a tie-breaker, and when you zoom out and take a look at each company’s respective market, the tides seem to be in Apple Inc. (NASDAQ:AAPL)’s favor.

Microsoft Corporation (NASDAQ:MSFT)’s Windows and Business (Microsoft Office) divisions together accounted for 58% of the company’s operating income in its most recent quarter. Both of these divisions are heavily tied to the struggling PC industry. IDC estimates that worldwide PC shipments from the top five vendors declined 11.4% in the second quarter of 2013 compared to the year-ago quarter.

Though Apple may currently be struggling to boost EPS comparisons thanks to lower profit margins and tough sales comparisons, sales could easily pick up again. And IDC’s expectations for tablet and smartphone shipments (two categories that make up 69% of Apple’s business) are far more optimistic than its forecast for PC shipments. IDC estimates a compound annual growth rate of 13.3% for worldwide smartphone shipments between this year and 2017. The research firm is even more bullish when it comes to tablets, forecasting a compound annual growth rate of about 16% for the same period.

Given that Apple and Microsoft are on nearly equal footing when it comes to dividends, I’d rather go with the stock in a growing industry. Even more, with pessimism lurking over Apple’s conservative valuation, any catalyst in Apple’s story could result in significant upside.

Page 1 of 2

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!