Apple (AAPL +2.65%) stock recently found favor with legendary investor Warren Buffett's Berkshire Hathaway. In May, an SEC filing revealed Berkshire had invested $1 billion into Apple stock. While I'm sure there are a number of reasons Berkshire decided Apple was a quality investment, I'd guess the tech giant's dividend was one of the main factors. Since Apple reinitiated a dividend in 2012, the company has worked its way into the ranks of some of the most prominent dividend names.
Here's exactly why I love Apple's dividend.
Image source: Getty Images.
1. It's meaningful.
Apple's dividend yield hasn't always been meaningful, but the stock's approximate 23% decline in the past 12 months has boosted Apple's dividend yield to meaningful levels. The company's dividend yield, which is defined as dividends paid out per share in the past 12 months divided by the stock price, is at about 2.3% today -- far higher than the dividend yield of 1.5% a year ago.
Sure, a 2.3% dividend yield isn't high enough to get income investors jumping out of their seats, but it's at least meaningful after the stock's decline. But Apple makes up for what it lacks in dividend yield in the next two points.
2. It's sustainable.
Income investors are just as concerned with sustainability as they are with dividend yields. After all, what good is a high dividend yield if investors can't say with some certainty that they expect the dividend to still be around in five to 10 years.
Apple's dividend scores an A-plus for sustainability. A cash-rich balance sheet, heady cash flow, loyal customer base, and a low payout ratio mean the tech giant can continue paying out its dividend even in the face of significant headwinds. For instance, Apple has generated a whopping $52 billion in free cash flow, or cash from operations less capital expenditures, during the past 12 months. Of this monstrous stream of free cash flow, Apple paid out just $12 billion in dividends during this period.
Image source: Apple.
The commonly used payout ratio metric, which equals dividends paid in the trailing-12-month period as a percentage of earnings, also illustrates how Apple has ample wiggle room in terms of dividend payouts. Apple's payout ratio is just 23% -- much lower than payout ratios of many popular dividend stocks, which are often well over 50%.
3. It's increasing.
Apple has increased its dividend every single year since 2012. And management has every intention to continue doing this for years to come.
In 2014, Apple issued a press release informing investors of the company's plans "to increase its dividend on an annual basis." The move solidified Apple's appeal to dividend investors.
And the increases to Apple's dividend have been substantial, averaging about 11% annually. This year, Apple increased its quarterly dividend per share from $0.52 to $0.57 -- or from $2.08 to $2.28 on an annual basis. This represents a 9.6% increase -- about in line with the company's average dividend hike of 11%.
Combining Apple's meaningful dividend yield, its likelihood to persist for years to come, and management's commitment to continue increasing the dividend on an annual basis, Apple is a great stock for investors looking for reliable and growing dividend payouts.
