Battle of Dividend Stocks: Microsoft vs. Meta Platforms

Globe and Mail

14 hours ago

Key Points
Microsoft boasts a 20-year streak of consecutive annual dividend increases.
Meta's dividend is new and unproven, but it's backed by strong free cash flow and rapid business growth, giving it meaningful long-term upside.
Both are good dividend stocks, but one is the clear winner.
10 stocks we like better than Microsoft ›
Microsoft (NASDAQ: MSFT) has long been a go‑to for income among tech stocks, while Meta Platforms (NASDAQ: META) only began paying dividends last year. But Microsoft's long and impressive dividend track record doesn't automatically make it the better dividend stock when comparing the two.
On the surface, software giant Microsoft's dividend yield of about 0.6% comfortably exceeds social media specialist Meta's yield of roughly 0.3%. But beneath this headline dividend metric, the comparison isn't so straightforward. Ultimately, though, one of the two stocks does come out ahead when comparing them as dividend stocks. So, which is it?
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Microsoft: a reliable dividend growth stock
Highlighting Microsoft's track record of dividend growth, its quarterly payout of $0.83 per share, or $3.32 annually, represents a 10% boost over its dividend last year. Furthermore, the dividend marks the company's 20th consecutive year of increases.
Despite Microsoft's modest dividend yield of just 0.6%, the company's payout is backed by one of the most durable business models in tech. In addition, the dividend is easy for the company to pay out. It taps into only 24% of the company's annual earnings and a third of its annual free cash flow.
Looking ahead, Microsoft should be able to not only sustain but also grow this payout. Recent business performance shows a healthy, fast-growing company. In fiscal 2025, which ended June 30, Microsoft generated $281.7 billion in revenue, up 15% year over year. Operating income rose 17% to $128.5 billion. On the heels of such strong performance, the software company returned over $37 billion to shareholders through dividends and buybacks.
Meta: early days with upside potential
Meta Platforms' dividend is still new to Wall Street. Introduced last year, the company, which is the parent of Facebook, Instagram, WhatsApp, Messenger, and Threads, has already increased the payout once. In February, the company said it would boost its dividend by 5% to 52 and a half cents per share, translating to $2.10 annually.
Although the company's dividend yield of 0.3% and recent dividend increase are small, investors shouldn't count Meta out as a dividend stock. After all, its dividend consumes only about 7% of earnings and roughly 10% of free cash flow -- extremely conservative metrics. Further, the company's recent business momentum is extraordinary. Meta's second-quarter revenue soared 22% year over year, and its earnings per share jumped 38%. This business strength was helped by 6% year-over-year growth in daily active users across its family of social media apps, an 11% year-over-year increase in ad impressions, and a 9% jump in price per ad.
As with Microsoft, Meta is returning cash in more ways than one. Indeed, this explains why it has been so modest with its dividend; management favors share repurchases by a wide margin. In its most recent quarter, management repurchased nearly $10 billion worth of its stock while paying out just $1.33 billion in dividends.
All that said, Meta's entire business model is comparatively new and potentially riskier. The company's reality labs segment continues to burn cash as Meta invests heavily in artificial intelligence (AI). Highlighting how Meta's business is showing signs of potentially becoming more capital-intensive over time, the company's capital expenditures this year are expected to be between $66 and $72 billion. This means capital expenditures will rise about 77% year over year.
Of course, there's massive upside potential to the dividend, and the company's share repurchase program, if Meta's aggressive investments today help the company keep growing rapidly for years to come.
There's a clear winner
So, which tech giant is the better dividend stock? Microsoft is arguably the clear winner today. But that could change in the future.
Making the case for Microsoft, its yield is higher, its dividend is more established, and a long track record of consistent growth and strong free cash flow generation supports the payout. Investors can count on Microsoft to keep raising its dividend year after year, even as it continues to invest heavily in AI and cloud computing.
Meta, on the other hand, is still a newcomer. Its dividend may grow substantially over time, but there's no proven history yet. And while management's capital allocation has been increasingly shareholder-friendly, the company's rapidly rising capital expenditures and still-nascent dividend policy make it a riskier choice for income-focused investors. Sure, the stock trades at a more conservative valuation of 28 times earnings, compared with Microsoft at about 39 times earnings. But this lower valuation makes sense given Meta's dependence on advertising, a much more volatile and unpredictable source of revenue than Microsoft's diversified business.
Long term, Meta could very well become the better dividend stock of the two. But the safer bet today is Microsoft. For investors seeking dividend dependability with upside, the software giant is the more compelling choice.
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Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.