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Apple, Inc.'s 16% Dividend Increase -- What You Need to Know

By Daniel Sparks - May 5, 2018 at 9:46AM

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Apple wants to please its investors who are looking for income.

Along with its second-quarter results, Apple (AAPL 0.00%) announced an increase to its quarterly dividend, which extends Apple's growing dividend history and fortifies the stock's attractiveness as a dividend investment. Further, Apple's business looks poised to easily support ongoing increases for years to come.

Here's a look at Apple's most recent move -- and the strong company behind it.

A sketch of a bar chart with an arrow highlighting a growth trend

Image source: Getty Images.

Apple's biggest dividend increase yet

On May 1, Apple announced that it's raising its quarterly dividend by 16%, from $0.63 to $0.73. On an annual basis, this translates to an increase from $2.52 to $2.92, giving Apple stock a forward dividend yield of 1.6%.

What's particularly interesting about this is that it's Apple's steepest boost since reinstating its quarterly dividend in 2012.

Year

2018

2017

2016

2015

2014

2013

Dividend Increase

16%

11%

10%

11%

8%

15%

Data source: Apple's dividend history. Table by author.

Between 2012 and 2017, Apple's dividend increased at an average rate of about 10%, making Apple's 16% raise in 2018 out of the ordinary. In fact, the last time Apple upped its dividend by more than 11% was in 2013. But even Apple's 2013 increase of 15% was below its just-announced 16% hike.

Of course, there's a good reason for Apple's bigger-than-usual dividend increase. A recent corporate tax reform enabled Apple to repatriate overseas cash, helping the tech giant spend more on share repurchases and dividends. But Apple's recent rapidly growing earnings likely helped, as well. The company's trailing-12-month earnings per share increased 27% year over year.

There's more growth ahead

Of course, dividend investors want more than a meaningful dividend and a history of recent increases -- they want a strong likelihood of meaningful dividend growth in the future. Fortunately, this is where Apple really stands out.

Apple's payout ratio, or the percentage of its earnings it's paying out in dividends, is just 23%. This compares to a 45% payout ratio for Microsoft and a 50% payout ratio for IBM.

Here's a similar metric from Apple's cash flow statement to consider: Of Apple's $54 billion in trailing-12-month free cash flow, the company paid out just $13 billion in dividends, or 25% of free cash flow. Comparatively, Microsoft and IBM spent 37% and 41% of their trailing-12-month free cash flow on dividends, respectively.

Between Apple's net cash position of $145 billion, annual free cash flow of about $54 billion, recent double-digit earnings growth, and low payout ratio, income investors can expect meaningful annual dividend increases from Apple for years to come. Indeed, CFO Luca Maestri specifically said in the company's second-quarter earnings call that management knows its dividend "is very important to our investors who value income," and he noted that the company continues to "plan for annual dividend increases going forward." 

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