Saturday, November 2, 2013

Dividend Compass Cup Match 11- Microsoft vs Procter & Gamble

Last match, we had dueling blue chip behemoths Exxon Mobil falling to Wal-mart. This match is old economy versus new economy. Soap versus SOAP. Detergent versus databases. Can Procter & Gamble's heritage which dates to the 19th century fend off the techies from Redmond?

The Dividend Compass Cup rules are straightforward, we run the two quality, wide moat companies through the Dividend Compass to analyze which is the more interesting investing candidate. Todd Wenning's Dividend Compass scores them 1-5.

History? No contest. Procter & Gamble has paid a dividend since 1890, raising it 57 straight years. Microsoft has paid its dividend since 2003. If its close this will matter, but mainly the Dividend Compass Cup is going to be about the ast five years. Note, this is pretty helpful these days since we're focusing in on ability to weather a generational storm. 

Let's get started - first up please put down your Jolt cola, look up from your debug window, and let's see what kind of metrics Microsoft brings to round 2.

Microsoft metrics:
Microsoft has miles of FCF and Earnings cover, rock solid balance sheet, double digit dividend growth, and lofty ROE. I am not sure what else an income investor could want, and the scores sure show this:

Microsoft score:
Well folks, 4.99 out of 5 is near perfect. I think we can call Microsoft the Nadia Comaneci of the Dividend Compass. How will Procter & Gamble respond? Will its legions of MBAs be able to compete with the creativity and efficiency of Microsoft's army of talented software engineers?

Procter & Gamble is no slouch when it comes to dividends, and they clearly take their dividend policy very seriously.

Procter & Gamble metrics:

Whereas the dividend policy is firmware for P&G, its overall growth is less impressive. Coverage metrics are somewhat tepid. Dividend growth is marching on, but we saw that it will take near perfection to see off Microsoft in this match, let's see the tale of the tape.

Procter & Gamble scores

The P&G performance is plenty good and good enough to beat the vast majority of companies out there, but its not good enough to deal with Microsoft.  A company who is playing on a whole other level these days - margins, ROE, and balance sheet are things Microsoft has always had in its history.  But its decade long dividend track record makes it a formidable candidate for the Dividend Compass Cup. Microsoft is through to the Final Four to play Tim Horton's

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