Once a year, Apple (AAPL 0.71%) revisits its capital return program and announces a dividend increase. That time of the year is almost here. Though Apple updated its capital return program on May 2 last year, the tech giant usually announces changes to the program toward the end of April, alongside its second-quarter results. Apple investors, therefore, can expect a dividend increase next month -- or in early May at the latest.
Here's a look at what to expect from Apple's dividend increase this time around.
Image source: Apple.
A growing dividend history
Having declared its first dividend over five years ago, the tech giant has finally built up some strong dividend history. Since starting at a split-adjusted $0.38, Apple's dividend has increased every year, compounding at an average rate of 10.6%. Today, Apple pays shareholders about $3.3 billion per quarter in dividends.
This strong dividend streak means savvy dividend investors have profited nicely. In addition to shares soaring 165% in the past five years, Apple's dividend yield has remained at 1.5% or higher for most of this period, giving investors plenty of opportunities to buy into a meaningful, rapidly growing dividend.
Apple's dividend remains attractive (yielding 1.5% right now). Furthermore, Apple's strong history of double-digit dividend increases suggests investors can expect the iPhone maker's payouts to keep increasing in the coming years.
What to expect
Investors can expect another annual increase of around 10%.
Fortunately, Apple investors don't have to count solely on history to extrapolate that the tech giant will keep increasing its dividend; Apple has explicitly said it "plans to increase its dividend on an annual basis."
In addition, Apple's low payout ratio supports the case for another dividend increase. Thanks to 22% year-over-year earnings-per-share growth in the trailing 12 months, Apple sports a payout ratio that is beneath the already-low 27% payout ratio one year ago. Paying out just 24% of its annual earnings, Apple has significant room for further increases.
But the most concrete evidence of Apple's room for dividend growth surfaces when investors take a look at the company's rock-solid balance sheet and free cash flow statement. Not only does Apple have about $285 billion of cash plus marketable securities on its balance sheet, but it's currently raking in a whopping $52.3 billion in free cash flow annually. Yet, the company has paid out just $13 billion in dividends in the trailing 12 months.
iPhone X. Image source: Apple.
Sure, there are other things for Apple management could choose to do when it revisits its dividend increase every year. Namely, Apple has historically favored share repurchases over dividends. For instance, Apple spent about $32 billion repurchasing shares in the past 12 months. But recent changes to tax law mean Apple was finally able to repatriate boatloads of foreign cash. Therefore, if there's any year Apple will almost certainly sustain the strong dividend growth it has served investors in previous years, this is it.
