Over the past five years, MSFT stock has risen 120%, an average annual return of 24%. Apple stock, despite grabbing far more headlines and gaining greater attention for its products, has risen 98%, or just under 20% annually, during that time.
When you factor in the dividends — Microsoft yields 2.5% and has nearly doubled its payout in the past five years, Apple yields 1.9% and has only been paying a dividend since 2012 — the gap between the two stocks is even wider.
In fairness, the peaks in Apple’s stock have been much greater than those in the Microsoft stock price, but MSFT has been a steady, reliable grower with equally reliable dividend growth. Therein, perhaps, lies the difference between the two stocks.
MSFT Now a Dividend, Value Stock
Its days of regular double-digit sales and earnings growth long behind it, Microsoft stock has instead become the technology stock of choice for income investors and value investors (it trades at just 19 times forward earnings estimates) alike. AAPL, on the other hand, is still searching for an identity now that it’s no longer the unstoppable growth stock it was five years ago.
Even though Apple’s dividend is growing and its yield respectable, and the stock has become much cheaper (forward price-earnings of 11.8) than MSFT, Wall Street still views AAPL as a growth stock. But the company is no longer growing, as reflected by three straight quarters of sales declines.
Microsoft’s sales aren’t growing either, down nearly 9% last year. But profits are improving, and are expected to increase again next year. And what Microsoft lacks in “wow” factor it makes up for in solid business decisions.
For instance, the company’s foray into cloud computing has been a major growth driver. Its Azure cloud computing platform, where applications can be developed and managed via a global network of Microsoft-controlled data centers, has posted triple-digit revenue growth in recent quarters, making it easily the company’s fastest-growing segment.
Microsoft also just finalized its $26.2 billion acquisition of LinkedIn Corp (NYSE:LNKD). And while that’s a hefty price to pay for a social media company whose impact on Microsoft’s bottom line could be minimal, it’s a sign of the company’s financial clout — even after the LinkedIn buyout, MSFT still has $136.8 billion of cash ($17.59 per share) in its coffers. Plus, buying a social media site that a lot of people know and use is a good way to stay relevant and at the forefront of investors’ minds.
Then there’s the Cortana, Microsoft’s lesser known answer to Amazon.com, Inc.’s (NASDAQ:AMZN) Alexa. It’s a digital personal assistant for anyone with a Windows 10 device. While the Alexa grabbed all the headlines at this month’s Consumer Electronics Show in Las Vegas because of its new automaker partnerships, Microsoft announced a deal of its own with Nissan to install Cortana on its car dashboards.
So, while Microsoft’s products often get overshadowed by Amazon’s (whether it’s the Alexa over the Cortana, or Amazon Web Services over the Azure), there are plenty of catalysts for growth here. And Microsoft stock has already been growing just fine, thank you.
Bottom Line on MSFT and AAPL Stock
Apple stock had a nice bounce-back year in 2016, too. But that came on the heels of a bad 2015, and AAPL’s future catalysts are less defined amid a seemingly endless cycle of iPhone and iPad updates.
Some analysts have speculated that Apple is on its way to becoming the next Microsoft, a company whose best days are behind it. But MSFT peaked 17 years ago, and the company has since settled into a slower-growth, under-the-radar, shareholder-friendly identity that has worked well for it.
It could take a while for AAPL to adapt to its new slower-growth reality. In the meantime, I’d buy MSFT stock.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.