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In a head-to-head comparison earlier this year, Apple (NASDAQ: AAPL) came out ahead of Microsoft (NASDAQ: MSFT) as a better dividend stock. But since that comparison in March, shares of Apple have significantly outperformed Microsoft. Could Apple's steep gain in stock price alter the outcome of a face-off between these two dividend-paying stocks today?
Even more, while Apple's 21% return since that March 16 analysis of the two stocks is significant, Microsoft's 13% gain during this same time frame is impressive, too. This raises the question: Are either of these companies' dividends still attractive?
Let's take a look at both of these stocks to find out which is the better bet (if either is at all) for investors looking for income. The answer may surprise you.
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Microsoft
| Company | Dividend Yield | Payout Ratio | Trailing-12-Month EPS Growth (YOY) |
|---|---|---|---|
| Microsoft | 1.6% | 43% | 27% |
Data source: Reuters. EPS = earnings per share. YOY = year over year.
Neither Microsoft nor Apple boast dividend yields in line with the average of stocks in the S&P 500. On average, stocks in the popular market index boast a dividend yield of 1.8%. Microsoft, at least, comes somewhat close to this average, with a dividend yield of 1.6% -- not impressive, but notable.
Fortunately, Microsoft has other things going for it that make up for a lukewarm dividend yield. First of all, the company is paying out less than half of its earnings in dividends, as indicated by its 43% payout ratio. By combining this conservative payout ratio with Microsoft's strong momentum in its underlying business (27% trailing-12-month earnings growth), investors can see what makes the software giant attractive as a dividend stock: Microsoft can easily afford its dividend, making a good case for its long-term sustainability.
In addition, Microsoft's low payout ratio and strong fundamentals position the dividend for meaningful growth over the long haul. Last year, Microsoft increased its dividend by 7.6% -- and there's no reason growth like this can't continue on an annual basis for years to come.
Overall, Microsoft remains a compelling dividend stock. But how does this compare with Apple?
Apple
| Company | Dividend Yield | Payout Ratio | Trailing-12-Month EPS Growth (YOY) |
|---|---|---|---|
| Apple | 1.4% | 23% | 31% |
Data source: Reuters. EPS = earnings per share. YOY = year over year.
Microsoft has Apple beat when it comes to dividend yield. The iPhone maker's dividend yield is just 1.4%. But Apple's payout ratio of only 23% shows that the tech giant's dividend is extremely conservative. Apple, therefore, has plenty of room for increases in the coming years, even if earnings growth slows.