Apple (AAPL 0.49%) has become one of the best dividend stocks in all of tech. Fed by its popular device franchises, the Mac maker hauls in a quarterly cash hoard large enough to make Scrooge McDuck blush, and the company has, in turn, lavished capital on its shareholders through dividends and buybacks.
Apple reports its second-quarter earnings on Tuesday, May 2, and the company has traditionally raised its dividend during this quarter. So let's review how likely it is that Apple will raise its dividend once more and see how that decision relates to Apple's capital-return policies.
Is an Apple dividend increase coming?
Although I'm not a betting man, I'd say it's almost certain Apple will raise its dividend when it reports earnings.
For starters, at last year's shareholder meeting, CEO Tim Cook committed, on record, to annual increases in Apple's dividend. Signals don't get much stronger than that.
Moreover, Apple can easily afford to increase its cash distributions. The company sported $158 billion in net cash on its balance sheet as of its latest earnings report.
Further, compared with the prior year, analysts see Apple's sales rising 4.8% to $52.9 billion. Given Apple's cushy margin structure -- it has averaged a 22% net profit margin over the past five years -- the company will have only added to its cash hoard during the quarter.
Apple as a capital-return power
The world's largest publicly traded company only initiated its capital-return program in 2012, but it has already returned a staggering amount of money to its shareholders.
As of its most recent quarterly filings, Apple had paid $57 billion toward dividends and related share settlements and another $144 billion repurchasing its own shares. Apple's financial scope is so large that returning $201 billion to shareholders is the equivalent of buying an entire titan of American business -- think Pfizer, Chevron, or Verizon Communications.
And the company's capital-return prospects remain as rosy as ever. As part of the iPhone's 10th anniversary, Apple plans to refresh its phone lineup with a totally redesigned iPhone 8, which should help the company set a host of new financial records in the quarters that follow.
If anything, Apple's biggest problem with its swelling cash balance is finding productive ways to spend it. With its stock hitting all-time highs, share buybacks (historically Apple's favored capital-return lever) currently look less appealing. Apple does, however, have a number of interesting long-term projects that could make productive use of its excess billions.
For example, if Apple indeed plans to launch an electric and/or autonomous vehicle, its central issue may not lie in designing the car but in getting it produced. Apple could partner with one of a handful of potential assembly companies and finance the production capacity with its own capital at favorable terms. It could also use its capital to buy its way into any number of tangential businesses -- media or telecom assets are commonly cited. Apple is also rumored to be considering its own "space internet" using geosynchronous satellites that could take the place of traditional telecom carriers.
The bottom line is that Apple's embarrassment of riches gives it extreme flexibility to pursue any number of potential growth strategies. Many of these ideas are years away, if they ever see the light of day at all. Regardless, though, Apple is set to take the latest in what has become an impressive track record of deploying its billions by increasing its dividend next week.