In the video below, Motley Fool tech bureau chief Eric Bleeker takes a look at the dividends of tech companies including Apple (NASDAQ:AAPL), Intel (NASDAQ:INTC), and Microsoft (NASDAQ:MSFT). Apple currently boasts a dividend yield of 2% and a payout ratio of just 24%, but both of these metrics are below peers like Intel and Microsoft. Eric contends that Apple's low payout ratio translates into significant opportunities for dividend increases going forward, as evidenced by the fact that Apple generated over $50 billion in operating cash flow last year but is only on pace to return $10 billion to shareholders per year through dividends and reinvest $8.3 billion in capital expenditures.
Additionally, Eric looks at Apple's cash balance of $121 billion, of which $39 billion resides in the United States. Repatriating foreign cash results in additional taxes, so Apple's $39 billion domestic cash balance provides a significant cushion for future dividend increases.
Eric also notes that it is important to look at what other uses for cash a company might have. While he doesn't expect Apple to pursue any large acquisitions, smaller acquisitions and investments in Apple's supply chain have proven successful in the past and will likely warrant consideration going forward.
So there's ample room for Apple to grow its dividend and continue to invest in its business. With only a couple of quarters of dividend history, it is important for Apple to be deliberate in its strategy for increasing dividends.
Eric Bleeker has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Intel, and Microsoft. Motley Fool newsletter services recommend Apple, Intel, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.