Will Apple Raise Its Dividend in 2018?

Apple (AAPL -0.35%) is the stock market's largest company, but what many people don't realize about the tech giant is that it has also become one of the biggest payers of dividend income to its investors. Even though its dividend yield isn't particularly remarkable, Apple hasn't been all that stingy with its payout increases in recent years, and only the stock's huge rise has diminished the importance of the dividend income it pays.

Apple raised its dividend in 2017, and many investors who follow the iPhone maker believe that there's a good reason to expect even more generous dividends down the road. Let's take a closer look at Apple to see whether shareholders should count on a payout increase in 2018.

Dividend stats on Apple

Data source: Yahoo! Finance. Last increase refers to ex-dividend date.

When did Apple start paying a dividend?

The technology industry spent a long time in high-growth mode before it started to embrace dividends, and as its leader, Apple's experience closely resembles what you'd find at many of its peers. Apple actually gave shareholders a modest payout early in its history, but in the mid-1990s, it suspended its dividends and left investors relying on its share-price increases.

That came to an end in 2012, when Apple initiated a new dividend payout, joining some of its peers at the top of the industry that had established similar dividend policies. Apple's initial dividend was reasonable, establishing a dividend yield of just under 2% and paying out about three-tenths of its earnings to shareholders.

Apple has done a good job of fostering dividend growth since jumping on the income-paying bandwagon. The iPhone maker has seemed to target roughly a 10% rate of increase annually in its quarterly dividend, with some years seeing slightly greater boosts and others falling just shy of that mark. Apple's most recent boost came in at 10.5%. A $0.63-per-share quarterly dividend might not sound like very much, especially for a stock that fetches more than $170 per share. But given Apple's size and number of shares outstanding, even that modest amount works out a rate of nearly $13 billion in dividends paid annually.

AAPL Dividend data by YCharts.

Can Apple keep boosting its dividend?

There's no doubt that Apple has plenty of room to increase its dividend if it wants. The company's payout ratio is less than 30%, giving it capacity to boost its payouts substantially without endangering its ability to keep spending on expansion efforts and other shareholder-friendly initiatives.

The biggest catalyst for an Apple dividend increase could come from the latest tax reform efforts from Congress. Initially, more hopeful shareholders had thought that favorable tax treatment for companies that generate a substantial amount of their revenue and profits from overseas could come during 2017, and if it had, then dividend investors might have gotten a larger payout boost in the middle of the year than they did.

Image source: Apple.

It's important to understand that Apple can't just return all of its overseas cash to investors. Already, the company has used financial engineering to borrow money for use in share buybacks and other corporate purposes, and it would want to pay down at least a substantial portion of that debt before thinking about dividends. Yet with a massive cash hoard, some estimates put the amount of free cash at Apple's disposal under a favorable tax reform law at around $110 billion to $160 billion. A possible special dividend of as much as $20 per share would take care of more than $100 billion of that balance in one fell swoop, or Apple could take a longer-term view and boost its regular dividend more aggressively while holding onto the cash for strategic purposes.

Is a dividend raise coming for Apple investors in 2018?

Apple has successfully continued to grow, and although its latest product releases haven't come without hiccups, the company still has a bright future. Even without substantial tax reform, Apple is likely to give shareholders another double-digit boost, and a $0.07 rise to $0.70 per share quarterly would produce a growth rate of 11%, which is consistent with past practice. If tax reform passes, then even more generous moves could be forthcoming.