Apple (NASDAQ:AAPL) "plans to increase its dividend on an annual basis," management said in its annual update for its capital return program in 2014. The tech giant has continued to do exactly this, increasing its dividend every year since it was initiated in 2012.
But with Apple's revenue and earnings growth facing headwinds recently, can the company continue to increase its dividend at similar rates as it has in the past? I think so. Not only can Apple boost its dividend by a nice rate this year, but it looks well positioned to increase its dividend at solid rates for years to come.
A cash-generating machine
Despite Apple's 7% and 11% year-over-year declines in revenue and earnings per share, respectively, in the trailing 12 months, Apple's balance sheet and cash flow statement still look poised to easily handle dividend increases for years to come.
First, a quick glance at Apple's balance sheet reveals a mind-boggling $246.1 billion in cash and marketable securities. Sure, $230.2 billion of this cash is held outside the U.S., but the company can easily access debt at very low interest rates because of its excellent credit rating. With a war chest like this, Apple can effortlessly handle its annual dividend payments, which are currently costing it about $12.3 billion per year.
Then there's its cash flow statement, which makes an even better case for the ease with which the company can pay dividends and increase them on an annual basis. Apple is currently bringing in about $52 billion of free cash flow annually. For a quick refresher on what free cash flow is, it's cash flow left over after both operating costs and capital expenditures are taken care of -- it's the good stuff management can use to boost shareholder value by paying dividends, repurchasing shares, making acquisitions, and more. With Apple raking in $52 billion of cash flow annually, the company's $12.3 billion in dividend payments have lots of room to grow.
It's no wonder that Apple has been increasing its dividend as aggressively as it has. The company has increased its dividend at an average rate of 11% since it was initiated in 2012.
More cash in your pocket
Over the long haul, sustained dividend increases can help juice an investors' income stream significantly. Consider by how much Apple's dividend can grow over time if the company keeps up its average annual increase of 11%. In just seven years, its current quarterly dividend could more than double, growing from $0.57 per share to $1.18, or $4.72 annually. This would increase its dividend payments as a percentage of today's per-share cost basis from 1.6% to 3.2% in just seven years -- not bad.
Apple's dividend is about to get some extra attention when the company updates its capital return program sometime this spring, as it does every year. If recent years are any indication of exactly when Apple will announce its latest dividend increase and share repurchase authorization, the company will share an update on the important program alongside its May 2 earnings report.