Microgrid is receiving more and more attention, which is considered one of the solutions to efficiently supply electrical energy to loads. During the operation of the microgrid, the power loss and voltage stability of the microgrid are the main indicators to evaluate the operational efficiency. The solution of using distributed generators (DG) is becoming more and more popular to improve the performance of the microgrid. The main challenge of this solution is the determination of the optimal allocation of DGs in the microgrid. This paper proposes a water wave optimization (WWO) algorithm to identify the optimal allocation of DGs in the microgrid for power loss reduction and voltage stability improvement. The WWO algorithm-based achievements are compared with those using a genetic algorithm (GA) and a particle swarm optimization (PSO) algorithm to confirm the effectiveness of the proposal in the minimization of power loss and improvement of voltage stability.