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4 Reasons to Love Apple's Dividend

By Daniel Sparks – Updated May 30, 2019 at 5:30PM

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Dividend stocks don't get much better than this.

Apple (AAPL -0.34%) shares have tumbled recently, falling 13% over the past month as investors fret about the impact of a trade war between the U.S. and China. While investors will want to keep an eye on how evolving tariffs and heightened tension between the two countries will impact Apple, one benefit of a lower stock price in the meantime is that prospective investors now have access to a higher dividend yield than they did one month ago.

Of course, Apple's dividend yield of about 1.7% at the time of this writing still isn't exceptional. After all, the average dividend yield of stocks in the S&P 500 is currently about 2%, well ahead of Apple's dividend yield. Nevertheless, there's a lot to like about the company's dividend.

A chalkboard sketch of a bar chart highlighting a growth trend.

Image source: Getty Images.

1. A growing dividend

One of the best things Apple's dividend has going for it is growth. Management has increased the company's dividend every year since it was initiated in 2012. 

The tech giant's most recent dividend increase was announced alongside Apple's fiscal second-quarter results. It increased by 5% to $0.77 each quarter, or $3.08 annually. 

Over the past three years, Apple's dividend has increased at an average rate of 10.5%.

2. A low payout ratio

Looking ahead, there's plenty of room for further increases in Apple's dividend. This is particularly evident by looking at the company's payout ratio, or its dividend payments as a percentage of earnings.

Apple's payout ratio is just 27%. This means the tech company has significant wiggle room for its dividend if earnings take a hit. Further, it suggests there's lots of room for additional dividend growth.

3. Shareholder-friendly capital return efforts

Investors should also note management's overall approach to returning capital to shareholders. The current policy is arguably quite aggressive, as management is aiming to become net cash neutral over time. This means Apple wants its cash and debt to eventually balance to zero.

A big part of Apple's plan to become net cash neutral, of course, is its plan to repurchase shares. The company recently authorized an additional $75 billion in share repurchases. But Apple has shown over time that it also prioritizes consistent annual dividend increases as one way to return capital to shareholders.

4. A strong underlying business

Also helping to make Apple stock attractive as a dividend stock are the company's strong fundamentals. In addition to boasting a net cash position of $113 billion on its balance sheet, Apple is currently raking in about $60 billion annually in free cash flow. Cash abounds at Apple.

Overall, Apple offers dividend investors a meaningful dividend yield with reliable prospects for further dividend growth in the coming years.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.

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