Recently, investors have likely appreciated their dividend stocks more than usual. With the S&P 500 down more than 11% over the past year, many investors' portfolios have taken a hit. While it's never enjoyable to watch the prices of your stocks decline, there's one thing that probably didn't take a hit in investors' portfolios during this period: their income from high-quality dividend stocks. Not only do most top dividend-paying companies continue paying dividends through tough times, but many of them reward shareholders with increases to their payouts every year -- rain or shine.
Two tech stocks that have raised their dividend over the last year are Microsoft (MSFT 0.37%) and Apple (AAPL 1.27%). For investors who are looking to add income to their portfolios, both of these stocks are great ideas for consideration. But which tech giant looks like a better investment today? Let's take a look at both to find out.
Dividend yield
Software company Microsoft, announced its most recent dividend increase last September. Microsoft's board of directors approved a quarterly dividend of $0.68, 10% higher than its previous payout. On an annual basis, this quarterly dividend amounts to $2.72, giving Microsoft a dividend yield of about 1% based on the stock's price at the time of this writing.
Notably, Microsoft's dividend yield easily beats out Apple's. The iPhone maker has a dividend yield of about 0.6%. But it's worth noting that Apple is due for a dividend increase soon. The company typically announces a dividend increase in April. It's last increase of 0.5% was announced on April 28, 20022. Another increase would improve Apple's dividend yield. Still, it's unlikely that the increase will be even close to enough to bring Apple's dividend yield close to Microsoft's.
When it comes to dividend yield, Microsoft is the clear winner.
Dividend growth potential
With Microsoft's recent dividend increase being greater than Apple's, it might be tempting to quickly conclude that Microsoft's dividend growth potential is better than Apple's. But Apple actually has the upper hand when it comes to dividend growth potential. This is because Apple is only paying out about 16% of its earnings in dividends, leaving massive room for dividend growth in the coming years. Microsoft's payout ratio of 28% is still exceptional, but it's notably well above Apple's.
Valuation
One final key factor to compare the two companies is valuation. As perhaps the most important factor to consider when comparing these two stocks, this final element should carry more weight in helping investors decide which stock to invest in.
Apple wins on this front, sealing its lead over Microsoft in a battle between the two dividend stocks. It has a price-to-earnings ratio of just under 27. This compares to Microsoft's price-to-earnings ratio of about 30.
While valuation is a critical element for investors to consider, investors should note that Apple's win over Microsoft on this front is only slight.
Overall, Apple looks like a better dividend stock than Microsoft. But investors who want a more meaningful income stream than that provided by Apple's paltry dividend yield may still want to go with Microsoft over Apple. At the end of the day, however, both stocks look like attractive investments for investors looking to add a growing stream of dividend income to their portfolios.
