Which is the better dividend stock -- Apple (NASDAQ:AAPL) or Microsoft (NASDAQ:MSFT)? Both companies boast significant cash flow and enduring business models with key competitive advantages, making them worth a closer look for investors looking for income. But is one stock superior to the other as a dividend stock?

First, a look at the dividend-investor-relevant raw numbers:

Company

Dividend Yield

Payout Ratio

3-Year Dividend CAGR

3-Year EPS CAGR

3-Year Free Cash Flow CAGR

Microsoft

2.7%

83%

16%

(10%)

(8%)

Apple

1.8%

22%

11%

13%

19%

Next, some useful background on each company:

Microsoft
Microsoft Store Tmf
As is clear from Microsoft's high payout ratio of 83%, as well as the company's impressive three-year dividend compound average growth rate (CAGR) of 16%, the software giant clearly prioritizes dividends. And its dividend history reinforces this stance: Microsoft has been paying meaningful dividends since 2003.

But the company faces a key problem: Future dividend potential doesn't look as promising. Despite a strong dividend history and a clear prioritization of dividend payouts, Microsoft's high payout ratio, combined with its negative EPS and free cash flow growth during the three years, suggest its recent aggressive dividend hikes are unsustainable. Even if Microsoft is able to stabilize its negative EPS and free cash flow trend, the company's high payout ratio still makes a case for smaller dividend hikes in the future.

Apple
Apple Store
Apple is still a newcomer in the world of dividend stocks, but it shouldn't be overlooked. It has carved out a well-deserved position among top dividend stocks by delivering consistent increases, and by generating loads of free cash flow in increasing volume.

What's best about Apple as a dividend stock is the very aspect of what serves as a key concern for Microsoft as a dividend stock: dividend growth potential. Yes, Apple's sub-2% dividend yield is unimpressive. But this 2% yield takes on more meaning when investors realize the company has not only been increasing its dividend at solid rates since it reinitiated it in 2012, but it's also only paying out a small portion of earnings. With a payout ratio of just 22%, and with earnings on the rise recently, the tech giant's dividend looks like it has plenty of room for further increases.

What's Apple's weakness as a dividend stock? Higher uncertainty involved in predicting the cash flow. With such a concentrated portfolio of products -- particularly the iPhone at more than 60% of the company's revenue -- the company's business appears to be more susceptible to bigger swings. If the iPhone or other key products ever lose favor with consumers, the company's revenue could take a dive.

It's worth noting, however, that Apple seems to be transitioning to a more service-centric business model, with revenue streams that more closely resemble annuities. Still, soaring iPhone sales have left the company as reliant on the smartphone as ever.

Comparing the two stocks head to head, Apple appears to be the better dividend stock for long-term investors, in my opinion. Significant upside potential for its dividend seems to outweigh risks with uncertainty toward business growth. It also outshines Microsoft's higher yield and dividend prioritization.

Which dividend stock do you prefer?

Daniel Sparks owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.