Stock Market Performance Apple vs Microsoft Chart from wsj.comSize isn’t what mat­ters (mostly). When most con­sider stock mar­ket per­for­mance, they focus on the size of the port­fo­lio. The size of the invest­ment. It’s really not the only thing that matters.

In my opin­ion, it’s not even the thing that mat­ters most for the mod­est indi­vid­ual investor.

Div­i­dend per­for­mance and the result­ing income you receive from your port­fo­lio is a crit­i­cal per­spec­tive to take as a long-term investor. Let me share an example.

The Wall Street Jour­nal wrote an arti­cle yes­ter­day com­par­ing the stock mar­ket per­for­mance returns of Microsoft and Apple for the past 10 years. Had you invested $10,000 in each 10 years ago, you’d have about $13,000 in Microsoft today but $700,000 in Apple.

I saw the arti­cle late at night and tried to fig­ure out which 10 year span they used to show the gain in Microsoft! I looked at Yahoo! Finance for a few dates in the last month, and com­pared to 10 years ago Microsoft’s stock price was quite close to even or slightly down.

But, the thought in my head wouldn’t go away.

That thought was to com­pare div­i­dend per­for­mance of Apple and Microsoft over that same time period.

Since author Brett Arends didn’t tell us what dates he used, I’m going to do a quick “back-of-the-napkin” analy­sis that should be quite valid.

$13,000 of Microsoft stock at yesterday’s close of $26.95 would imply that we own about 482 shares. Let’s say 500 shares — notice I’m round­ing UP.

$700,000 of Apple stock at yesterday’s close of $589.36 would imply that we own about 1,187 shares. Let’s say 1,150 — notice I’m round­ing DOWN.

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 a div­i­dend this past August.

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 $10.60 per year (per share). 1,150 Apple shares would give you a pay­check from Apple of over $12,500! That’s right, you’d get 25% more than your orig­i­nal invest­ment back EACH YEAR.

Let me say 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 %125 on that same orig­i­nal invest­ment (this year).

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

Which is a bet­ter return 4.4% or 125%1?

Next, let’s con­sider div­i­dend increases. Apple has no his­tory of doing so since this is their first year hav­ing a div­i­dend (in a long time). Microsoft increased their div­i­dend 15% in 2012 (com­pared to 2011). If they increase another 15% next year, our Microsoft share­holder would earn an addi­tion $66.51 next year, pump­ing next year’s return to 5.1% on the ini­tial investment.

As Apple share­hold­ers, let’s hope/pray they increase their div­i­dend just 5% com­pared to Microsoft’s 15% raise. That 5% increase gives our Apple share­holder an extra $625 in income next year (an increase more than the total Microsoft return). That’s a 131+% return on the orig­i­nal invest­ment next year alone2.

And, this whole “back-of-the-napkin” analy­sis doesn’t even account for the stock mar­ket per­for­mance impact on the over­all port­fo­lio. I mean, you’d have roughly $700,000 more Apple than you would Microsoft (see that, I made the whole value of the Microsoft pur­chase a round­ing error com­pared to Apple’s value!)

I was going to actu­ally build a table of all the Microsoft div­i­dend pay­ments since 2003 to com­pare the extra 9 years of div­i­dend pay­ments com­pared to Apple, but now real­ize I don’t even have to to prove my point. Even if we assume our Microsoft investor received $450/year3 from 2003–2011 they’d still have less than $5,550 in div­i­dends total for the prior 9 years com­bined4. Notice that even accord­ing to Brett’s results, Microsoft’s stock mar­ket per­for­mance results were heav­ily dis­pro­por­tioned towards their div­i­dend return, and not port­fo­lio growth.

Make sense? I hope so, this is really impor­tant to you (if you care about your finan­cial future, the finan­cial safety of your fam­ily, or being respon­si­ble). Espe­cially as a mod­est investor.

Of course, we have to con­sider the oppo­site posi­tion. One could argue that Apple is worse for investors because the fis­cal cliff will cause Apple share­hold­ers to have a way larger div­i­dend tax increase than it will Microsoft share­hold­ers5.

If you found this inter­est­ing, please con­nect to the Elephant’s Pay­check Blue­print using Twit­ter or Face­book (I pre­fer Face­book for now if it’s the same to you). In the cou­ple of weeks or so, I’ll be releas­ing a sam­ple port­fo­lio that incor­po­rates these ideas and a descrip­tion of The Blue­print for peo­ple who are switch­ing jobs and have a 401k rollover to invest.

(dis­clo­sure: long Apple)

  1. 125% [↩]
  2. I’ll leave the math of the fan­tasy of a 15% raise to you guys [↩]
  3. The div­i­dends started smaller and have grown over time, so they got much less in the ear­lier years with the excep­tion of the $3/share spe­cial div­i­dend in 2004. [↩]
  4. $450/year for 9 years, plus about $1,500 in spe­cial div­i­dend in 2004. [↩]
  5. This is a joke. [↩]