Microsoft Corporation (MSFT) vs. McDonald’s Corporation (MCD): Which Dividend Dow (.DJI) Player Dominates?

Dividend stocks outperform non-dividend-paying stocks over the long run. It happens in good markets and bad, and the benefit of dividends can be quite striking — dividend payments have made up about 40% of the market’s average annual return from 1936 to the present day. But few of us can invest in every single dividend-paying stock on the market, and even if we could, we might find better gains by being selective. That’s why we’ll be pitting two of the Dow Jones Industrial Average 2 Minute (INDEXDJX:.DJI)‘s dividend payers against each other today to find out which Dow Jones Industrial Average 2 Minute (INDEXDJX:.DJI) stock is the true dividend champion. Let’s take a closer look at our two contenders now.

Microsoft Corporation (NASDAQ:MSFT)

Tale of the tape
Microsoft Corporation (NASDAQ:MSFT) is a 13-year veteran of the Dow. Hailing from Redmond, Wash., Microsoft is the world’s largest software company thanks to its early successes in operating systems. Microsoft Corporation (NASDAQ:MSFT)’s story — more specifically, founder Bill Gates’ story — has been made into a TV movie, and the company became the face of the dot-com boom of the 1990s, when it rose to claim the title of “most valuable company in history.” Although Microsoft Corporation (NASDAQ:MSFT)’s market cap is less than half of what it once was, the company’s financials have kept growing superbly, allowing it to easily pay out dividends for years.

McDonald’s Corporation (NYSE:MCD) is a 27-year veteran of the Dow Jones Industrial Average 2 Minute (INDEXDJX:.DJI) and is based in Southern California. It’s the world’s largest publicly traded restaurateur, with more than 34,000 restaurants staffed by more than 1.8 million employees, serving 69 million people in 119 countries every single day. It is the only restaurateur to ever gain a place on the Dow Jones Industrial Average 2 Minute (INDEXDJX:.DJI), and this status is reflected by its incredible brand recognition overseas. The company’s first grand openings in Russia and China were attended by thousands, and those restaurants remained among the entire company’s top producers for many years afterwards.

Statistic Microsoft McDonald’s
Market cap $279.7 billion $103.2 billion
P/E Ratio 17.3 19.1
Trailing 12-month profit margin 21.6% 19.8%
TTM free cash flow margin* 36.2% 14.2%
Five-year total return 29.2% 97.7%

Source: Morningstar and YCharts.
*Free cash flow margin is free cash flow divided by revenue for the trailing 12 months.

It looks like software maker Microsoft Corporation (NASDAQ:MSFT) has the margins to triumph today, but McDonald’s Corporation (NYSE:MCD) is more beloved by the markets. Which stock has what it takes to take the dividend crown?

Round one: endurance
According to Dividata, Microsoft Corporation (NASDAQ:MSFT) began paying dividends in 2003 and has been paying consistently ever since. That’s a reasonable streak, but it’s short compared with McDonald’s Corporation (NYSE:MCD), which began paying dividends in 1976. A 37-year payout streak lets Mickey D’s win this contest without breaking a sweat.

Winner: McDonald’s, 1-0.

Round two: stability
Paying dividends is well and good, but how long have our two companies been increasing their dividends? The same dividend payout year after year can quickly fall behind a rising market, and there’s no better sign of a company’s financial stability than a rising payout in a weak market (as long as it’s sustainable, of course).

Microsoft Corporation (NASDAQ:MSFT) has a habit of increasing its quarterly payout at the end of the year, which it avoided doing in 2009 during the financial crisis. However, because of the increases of late 2008 and late 2010, Microsoft has in fact raised its total annual payouts since 2005. McDonald’s Corporation (NYSE:MCD) paid annual dividends from 2000 to 2008, when it switched to a quarterly payout — but that year its $0.375 quarterly payouts equaled the single $1.50 payout per share of 2007, which means that Mickey D’s has only been increasing its dividends since 2009.

Winner: Microsoft, 1-1.