Which Stock is Better, Apple or Microsoft?

When look­ing at Apple stock per­for­mance com­pared to Microsoft, peo­ple keep focus­ing on the wrong thing. They’re look­ing at stock price and try­ing to infer if it’ll grow more than some alter­na­tive. If your Elephant’s bring­ing home a pay­check, hope­ful­ly you’ve learned a dif­fer­ent way to view per­for­mance.

Back in November, the Wall Street Journal wrote an arti­cle on Microsoft vs Apple stock per­for­mance over the past 10 years. At the time I wrote up my own com­par­i­son on my per­son­al blog. I thought it would be help­ful to update the arti­cle and repost it here as it’s been one of my most pop­u­lar arti­cles.

The orig­i­nal arti­cle com­pared Apple & Microsoft and tried to reach a con­clu­sion that shows that Microsoft would be a bet­ter invest­ment at that time than Apple.

Maybe ((Not real­ly. I was just try­ing to be nice. I pre­fer not to use pre­dic­tions guess­es of the future as a basis for invest­ment deci­sions.)).

The arti­cle com­plete­ly ignored div­i­dend per­for­mance over the same time peri­od. It speaks to the finan­cial com­mu­ni­ty’s inabil­i­ty to give cred­it to div­i­dend analy­sis as a dri­ver for an invest­ing strat­e­gy.

Apple’s stock per­for­mance, from a div­i­dend per­spec­tive, speaks to why focus­ing on div­i­dend growth makes for a great long term strat­e­gy.

Brett Arends (the orig­i­nal author) did­n’t share the exact dates he used to look at the com­pa­nies’ stock per­for­mance, and I could­n’t fig­ure out dates that would fit his num­bers exact­ly. If we do some “back-of-the-nap­kin” math, we’ll get an analy­sis that teach­es us some­thing inter­est­ing, even if we don’t have exact num­bers.

Microsoft v Apple Stock Performance Results

Using Brett’s tim­ing and results, we can make some assump­tions about how many shares of each com­pa­ny we own:

• The final analy­sis showed about $13,000 of Microsoft in late November. Using the clos­ing stock price from the day the arti­cle was pub­lished ($26.95) we’d own about 482 shares. Let’s round that up to 500.
• $700,000 of Apple stock would be about 1,187 shares at the clos­ing price of $589.36 ((Notice how much low­er Apple’s stock price is today. Realize that this div­i­dend analy­sis does­n’t change, even though Apple’s stock price has declined dra­mat­i­cal­ly.)). Let’s round that share amount down ((Notice each time I’m round­ing, I’m round­ing in a way that makes Apple’s results less favor­able.)) to 1,150 shares.

While at the time of the orig­i­nal pur­chase 10 years ago, nei­ther com­pany had a div­i­dend, both pay div­i­dends today. Microsoft paid some div­i­dends in 2003 & 2004, and start­ed reg­u­lar pay­ments in 2004. They also paid a $3.00 spe­cial div­i­dend in 2004. Apple start­ed pay­ing a div­i­dend in August 2012 and sub­se­quent­ly increased that div­i­dend by over 15% in April 2013.

Had you made the pur­chases Brett describes you’d receive the fol­low­ing annu­al pay­checks from your port­fo­lio:

• Microsoft’s div­i­dend is $0.92 per year (per share). 500 shares of Microsoft would give you a pay­check from Microsoft of $443.44 per year.
  
• Apple’s div­i­dend is $12.20 per year (per share). 1,150 Apple shares would give you a pay­check from Apple of over $14,000! That’s right, you’d get 40% more than your orig­i­nal invest­ment back EACH YEAR. Apple’s annu­al div­i­dend pay­ment 10 1/2 years in is over 30x more than Microsoft’s.

Interestingly, when I first wrote this arti­cle before Apple increased their div­i­dend in April, the Apple pay­check was about $12,500. One div­i­dend increase lat­er, and instead of 25% a year more than the orig­i­nal invest­ment the pay­check is 40% a year more than the orig­i­nal invest­ment. And, that does­n’t even take into account any div­i­dend rein­vest­ing.

Let look at this dif­fer­ently. As of today, Microsoft is return­ing 4.4% as a div­i­dend this year based on the orig­i­nal $10,000 invest­ment. Apple is return­ing %140 on that same orig­i­nal invest­ment.

Heres’ a short quiz, just to make sure you’re fol­low­ing along:

Which is a bet­ter return 4.4% or 140% ((140%))?

The Impact of Dividend Increases

In the last year, both Microsoft and Apple have increased their div­i­dends 15% (nei­ther is a div­i­dend aris­to­crat). Going for­ward, if the next increase is also 15% there is a dra­mat­ic dif­fer­ence in the rais­es earned:

• A 15% increase to Microsoft’s div­i­dend would mean a raise of about ¢14, lead­ing to a total raise of $75. A $1.06 total div­i­dend on 500 shares would mean a total div­i­dend of $530, or 5.3% on the orig­i­nal $10,000 invest­ment.
• A 15% increase to Apple’s div­i­dend would mean a raise of about $1.83, lead­ing to a total raise of over $2,100. A total div­i­dend of $14.00 per Apple share would imply a total div­i­dend of $16,100, or 161% of the orig­i­nal invest­ment.

This is a dra­mat­ic dif­fer­ence. And, if you’re not real­ly good at math, let me point out that the Apple raise is about 4 times more than the total Microsoft div­i­dend.

Reinvesting these div­i­dends will con­tin­ue to accel­er­ate this dis­par­i­ty because Apple’s larg­er div­i­dends work hard­er than Microsoft’s each sub­se­quent year.

If the Microsoft and Apple stock per­for­mance results were even close, we might look at all the extra div­i­dends Microsoft paid dur­ing the years when Apple did­n’t have a div­i­dend. In this case, even if Microsoft paid the cur­rent amount in each of the past 10 years, it still would­n’t amount to half of what Apple pays out each year now.

The com­par­i­son between Microsoft and Apple stock per­for­mance for the past 10 years isn’t even close. And, count­ing div­i­dends it does­n’t look like it’s going to get any bet­ter for Microsoft share­hold­ers.