Since Apple (AAPL -0.66%) started paying dividends in 2012, it has morphed into a great investment for dividend investors. Not only has it paid out consistent quarterly dividend payments ever since it initiated its dividend in 2012, but the company has increased its dividend every year.

Apple's dividend hike in 2019, however, was smaller than in previous years. The tech giant only boosted its dividend by 5% -- a significant deceleration from its 16% dividend increase in 2018. Is this the new norm for the iPhone maker's dividend growth or can shareholders expect a more robust dividend increase in 2020?

Apple CEO Tim Cook on stage to kick off Apple’s March 2019 event.

CEO Tim Cook. Image source: Apple.

Why a higher growth rate is likely

While it's impossible to know what its board of directors will decide when it revisits capital return plans this spring (as it does every year), there's good reason to believe Apple will boost its dividend by a rate greater than 5%. 

The main reason its dividend growth could accelerate in 2020 is because a 47% increase in Apple's stock price since management announced its dividend hike last year means that share repurchases aren't likely to be as rewarding as they were when the stock was trading at a more conservative valuation. Part of Apple's capital return program includes appropriately balancing between returning capital through share repurchases and through dividends. Since the stock's price-to-earnings ratio has risen from around 18 after the company's last dividend increase announcement to more than 25 today, Apple's board may opt for a higher dividend growth rate since the stock buyback opportunity isn't as attractive as it was.

Of course, another reason to expect higher dividend growth is simply that the tech company's business has turned a corner since then. Alongside its capital return program update last year, Apple announced a 5% year-over-year decline in revenue and a 10% decrease in earnings per share. But it has now returned to both top- and bottom-line growth. Furthermore, its services and wearables businesses are firing on all cylinders.

Finally, there's the fact that Apple still has $98 billion in net cash on its balance sheet -- a long way away from the company's target to eventually becoming net cash neutral. And with annual free cash flow tracking close to $60 billion, Apple will have to be quite aggressive with its capital return program to get closer to this target over time. If its board reduces stock buyback spending because shares have risen so sharply, the company may rely more on dividend growth this year than it did in 2019 in order to make progress toward a net cash neutral position.

What to expect

It's unclear exactly what rate by which Apple will decide to increase its dividend. But it would make sense for dividend growth to move closer to the company's five-year average dividend growth rate of about 10%.

Apple typically announces its dividend around the end of April or the beginning of May, alongside its fiscal second-quarter results.