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Battle of Dividends: Apple Inc. vs. Microsoft

Daniel Sparks, The Motley Fool

Thanks to a growing list of tech juggernauts with steady, positive cash flow, investors don't need to look outside of tech to find good dividend stocks. In fact, two of the most popular stocks in tech are also two of the best dividend stocks for investors to consider. Both Apple (NASDAQ: AAPL) and Microsoft (NASDAQ: MSFT) offer investors meaningful dividend yields, low payout ratios, and dividend growth -- all supported by strong underlying businesses.

But which of these two dividend stocks is the better bet? One year ago, Microsoft won this battle. Though Apple's lower payout ratio was attractive at the time, its stock's sharp run-up and Microsoft's underperformance made the software giant a better dividend stock. But since that article was published, Microsoft stock has soared about 47% and Apple has risen 28%. Does Microsoft's outperformance over the last 12 months make Apple the more attractive dividend stock today?

Microsoft executive discussing the power of Microsoft Azure in front of a blue Microsoft Azure backdrop.

Image source: Microsoft.


Dividend Yield

Payout Ratio

Three-Year Compound Average Dividend Growth Rate

Most Recent Dividend Increase





Data source: Reuters and company SEC filings. Table by author.

Unsurprisingly, Microsoft's dividend yield fell sharply over the last 12 months as a result of its soaring stock price. Today, Microsoft has a dividend yield of 1.8%, down from 2.4% a year ago. Investors should obviously give weight to this smaller dividend yield in their analysis. On a positive note, however, Microsoft's payout ratio has declined from about 70% to 49% thanks to strong earnings growth.

Looking ahead, Microsoft's strong performance in its commercial-cloud segment should continue driving growth for the company. Commercial-cloud revenue in Microsoft's most recent quarter, for instance, was up 56% year over year, to $5.3 billion. This played a key role in Microsoft's 12% and 10% respective year-over-year revenue and operating income growth during the quarter. 


Dividend Yield

Payout Ratio

Three-Year Compound Average Dividend Growth Rate

Most Recent Dividend Increase





Data source: Reuters and company SEC filings. Table by author.

Apple stock's strong 28% increase over the past 12 months has similarly suppressed the tech giant's dividend yield, but to a much lesser degree. During this period, Apple's dividend yield declined from 1.6% to 1.4%. Of course, Apple's dividend yield is still lower than Microsoft's, but it's a much closer battle this time around.

Like Microsoft, Apple's payout ratio has managed to fall even in the face of a recent 10.5% dividend increase. This has been helped by Apple's sharp 22% year-over-year increase in earnings during this period. Apple's already low payout ratio fell from 27% one year ago to 24% today. This leaves significant room for dividend growth in the coming years.

Also like Microsoft, there's good reason to expect more earnings growth for Apple in the years ahead. Namely, Apple's services and other products segments look poised to be strong catalysts. Meanwhile, strong revenue growth and pricing power in Apple's iPhone segment bode well for the future of Apple's most important product.

Driven by Microsoft's soaring stock price over the last year, the software company's dividend yield has been suppressed enough to make Apple the better dividend stock this time around. Sure, Microsoft's dividend yield of 1.8% is ahead of Apple's at 1.4%, but Apple's significantly lower payout ratio and similarly strong earnings growth suggest its dividend growth will likely outpace Microsoft's in the coming years.

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Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Daniel Sparks owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.