Among the many different approaches to investing, the growth-oriented method and the dividend-seeking method are arguably two of the most popular. But what if one could combine both of these strategies? Fortunately, some companies provide excellent growth opportunities and robust dividends thanks to their ability to generate plenty of cash.
Let's look at two such companies: Microsoft (MSFT -2.45%) and Apple (AAPL 0.52%). Here's why these two well-known tech giants are worth considering for both growth and income-seeking investors.
1. Microsoft
Microsoft currently offers a dividend yield of 0.78%. That's below the S&P 500's average of 1.27%. Yet, this tech powerhouse can still be attractive to income-seeking investors despite its relatively low yield. For instance, those who love dividends will appreciate that the company has raised its payouts by nearly 59% in the past five years. That's an average annual raise of almost 12%.
Further, the company generates plenty of free cash flow to the tune of $60.7 billion as of the end of 2021, or a 13% increase over the trailing 12-month period. Microsoft boasts a cash payout ratio of just 28%, giving it plenty of room for more dividend increases. Of course, Microsoft's dividend is backed by a solid business.
The company has been around for several decades and remains a leading provider of computer operating systems. The company's productivity tools are also highly popular among businesses and individuals. These include Microsoft Word, Microsoft Outlook, and Microsoft Excel, among others. The company is helping businesses boost their efficiency in other ways as well, most notably with its fast-growing, cloud-computing business.
Through Microsoft Azure, the tech giant has become a leader in cloud computing. Azure held a 21% share of the cloud market as of the fourth quarter, coming in second behind Amazon Web Services (AWS). Furthermore, Microsoft is a leader in gaming thanks to its highly popular Xbox Console.
Notably, the tech giant boasts a solid brand name. Microsoft routinely ranks as one of the most valuable brands in the world. It grabbed the third spot in Forbes' 2020 iteration of its ranking.
Image source: Getty Images.
In the trailing 12-month period, Microsoft's generated revenue of $184.9 billion, representing a 15.6% year over year increase. The company's net income in this period came in at $71.2 billion, a 27.1% increase. Analysts see Microsoft growing its revenue at an average of 17.4% per year for the next five years.
For a company this size -- Microsoft's market cap is $2.3 trillion as of this writing -- that's very impressive. This is indeed a dream stock for growth investors who also want reliable dividend income.
2. Apple
Like Microsoft, Apple does not look like a particularly impressive dividend stock -- at least, at first glance. The company offers a dividend yield of 0.50%. That's even lower than Microsoft's.
But there is more to the story. Apple has raised its payouts by nearly 40% in the past five years (or almost 8% per year, on average), and its cash payout ratio of 14% is very conservative. Moreover, the company generated $101.9 billion in free cash flow in the past 12 months, up 12.58% from a year ago. So clearly, Apple has many more years of raising its dividends ahead.
Turning to Apple's business, there continues to be much to like. The company's signature device, the iPhone, continues to be among the most popular smartphones. Apple's other hardware products -- whether the iPad, Apple TV, MacBook, and others -- are thriving.
During Apple's fiscal year 2021 (ended Sept. 25, 2021), the company's product business generated $297.4 billion in sales, 34.7% higher than the previous fiscal year. Each of Apple's segments within this unit grew its sales.
At the same time, the company is also seeing its services revenue continue on an upward trajectory. The tech giant offers a suite of tools within this unit, including iTunes, Apple TV+, Apple Pay, etc. During Apple's 2021 fiscal year, the company's services division reported $68.4 billion in net sales, 27.3% higher than the previous year.
Apple's total net sales grew by 33% year over year to $365.8 billion. And its net income increased by 65% to $94.7 billion. Investors can expect the company to remain a leader in smartphones for the foreseeable future. Apple will increasingly rely on its services segment, too, which boasts even juicier margins.
The tech giant still has plenty of growth ahead, and the company's dividend is icing on the cake.
