Microsoft Corporation (MSFT) vs. McDonald’s Corporation (MCD): Which Dividend Dow (.DJI) Player Dominates?

Round three: power
It’s not that hard to commit to paying back shareholders, but are these payments enticing, or merely tokens? Let’s look at how both companies have maintained their dividend yields over time as their businesses and share prices grow:

MSFT Dividend Yield data by YCharts

Winner: McDonald’s, 2-1.

Round four: strength
A stock’s yield can stay high without much effort if its share price doesn’t budge, so let’s look at the growth in payouts over the past five years. If you bought in several years ago and the company’s grown its payout substantially, your real yield is likely look much better than what’s shown above. This one looks to be just as close as the last one:

MSFT Dividend data by YCharts

Winner: Microsoft, 2-2.

Round five: flexibility
A company — even one as well positioned as The Walt Disney Company (NYSE:DIS) or The Coca-Cola Company (NYSE:KO)— needs to manage its cash wisely to ensure that there’s enough available for tough times. Paying out too much of its free cash flow in dividends could be a warning sign that the dividend is at risk, particularly if business weakens. This next metric analyzes just how much of their free cash flows our two companies have paid out in dividends over the past four quarters:

MSFT Cash Div. Payout Ratio TTM data by YCharts

Winner: Microsoft, 3-2.

Wow, that one was back and forth until the very end, when Microsoft’s superior free cash flow levels allowed it to trounce the high-payout McDonald’s Corporation (NYSE:MCD), which is at risk of a dividend reduction should it find itself struggling to grow. Does that make Microsoft the best investment today? Perhaps not — shareholders have earned only a third of the return Mickey D’s shareholders have enjoyed in the past five years. What do you think? Is Microsoft the better investment today, or does McDonald’s Corporation (NYSE:MCD) offer some non-dividend advantages that make it a superior overall stock for your portfolio?

The article Microsoft vs. McDonald’s: Which Dow Stock’s Dividend Dominates? originally appeared on Fool.com is written by Alex Planes.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter, @TMFBiggles, for more insight into markets, history, and technology.The Motley Fool recommends Coca-Cola, McDonald’s, and Walt Disney and owns shares of McDonald’s, Microsoft, and Walt Disney.

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