Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

A Close Look at Apple, Inc.'s Dividend -- and Why It's a Solid Bet for Income Investors

By Daniel Sparks - May 8, 2017 at 9:36PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

After yet another increase, Apple's dividend is looking good.

Along with its second-quarter results, Apple ( AAPL -0.61% ) announced a $50 billion expansion to its capital return program. While the bulk of this new program focused on planned share repurchases, the tech giant importantly increased its dividend, too. Here's a look at Apple's dividend, and what investors can expect from it.

The Apple Store in the Upper West Side, New York City.

Image source: Apple.

Consistent increases

The first thing dividend investors interested in Apple stock should realize about the tech giant is that management seems set on paying out quarterly dividends on a consistent basis. Indeed, Apple has done exactly that since it initiated its dividend in 2012. Since 2012, Apple has increased its dividend every spring, boosting it a total of five times.

It's no surprise that Apple has increased its dividend every year. In 2014, Apple management specifically said in its press release about its capital return program that it planned to "increase its dividend on an annual basis."

Investors should also understand the narrow range of rates Apple has consistently increased its dividend by each year. Since it initiated its dividend in 2012, Apple's dividend has increased by anywhere between about 8% and 15% each year. Knowing this range of Apple's historical dividend increases, investors can set proper expectations for what to expect in the future. Of course, there's no guarantee Apple's annual dividend increases won't stray from this range in the coming years, but with five years of increases in a row behind it,  Apple's dividend increases are starting to show a pattern.

Validating the consistency with which Apple is increasing its dividend, when management announced a dividend increase earlier this month, the increase was about in line with the company's average historical increases during the last five years. In its second-quarter earnings release, Apple's board of directors approved a 10.5% increase to the company's quarterly dividend, bringing it to $0.63, or a total of $2.52 on an annual basis. This isn't far from Apple's 11% average compound dividend growth during this period.

Plenty of room for growth

For now, there's no reason Apple can't keep increasing its dividend at similar rates in the coming years. A quick glance at Apple's finances reveals plenty of room for dividend growth. For instance, the company ended its most recent quarter with an impressive $256.8 billion in cash. In addition, in Apple's trailing 12 months, the company paid out just $12.4 billion of its $53 billion of free cash flow in dividends. As long as Apple's business remains healthy, the company is poised for meaningful dividend increases for years to come.

A sketch of a bar chart showing dividend growth.

Image source: Getty Images.

One potential catalyst for faster dividend growth

Beyond Apple's consistent dividend increases and the company's supportive balance sheet and cash flow, there's a possible bonus upside to Apple's dividend. If legislation is passed that enables Apple to bring its abroad cash to the U.S. at a lower tax rate, management may re-evaluate its dividend and pay out a larger chunk of cash. In the company's second-quarter earnings call (via a Reuters transcript), Apple CFO Luca Maestri seemed to hint at the possibility of a more aggressive capital return program if this were to happen.

It's difficult for us to speculate about what might or might not happen [with our excess cash]. The [capital return] program that we're announcing today reflects the current tax legislation in this country. And there's a lot that still needs to happen there, and we'll see. Obviously, we will reassess our situation if things change.

Investors shouldn't count on favorable legislation, but if a repatriation tax holiday does become a reality, it's possible that Apple could give its dividend an extra boost.

Combining a growing track record of consistent dividend increases, Apple's heady financial position, and a possible catalyst for even faster dividend growth, Apple is a dividend stock worthy of any income investor's portfolio. Sure, Apple's dividend yield of just 1.7% isn't exciting, but these other factors make up for this unimpressive yield.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
$163.76 (-0.61%) $-1.01

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/02/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.