Significant pullbacks in some stocks' prices this year may have felt like a punch in the gut to some investors, leaving them looking for ways to help improve returns and ultimately ease the pain during the market's next big drawdown. While there's no certain way to do this, one idea worth exploring is investing in more dividend stocks. While dividend stocks can fall the same way as shares without dividends, many of them continue paying dividends as their share prices dip. Even more, a quality dividend stock could not only refrain from lowering its quarterly dividend payout but potentially even increase it during tough times.
But what dividend stocks have the kind of staying power and strong business characteristics to continue increasing their dividends during a bear market? While there are plenty of high-quality dividend stocks, one top idea is Apple (AAPL 0.64%).
Consistent dividend growth
Highlighting the resilience of Apple's dividend, the company hasn't skipped a quarterly payout since its dividend was initiated in 2012. Even better, Apple has increased its payout during each of the last 10 years. Indeed, the company's quarterly dividend has increased more than threefold (on a split-adjusted basis) since 2012.
More recently, Apple's dividend increases have been fairly modest, with its most recent hike only representing about a 5% increase. But this is likely due primarily to the company's preference to return more capital to shareholders indirectly via share repurchases than directly in the form of dividends. Further, Apple's recent dividend increases may have been lower in light of the uncertain macroeconomic environment. Whatever the case, investors should be pleased with Apple's long history of consistent annual dividend increases.
A low payout ratio
With a dividend yield of just 0.6%, investors are going to want more dividend growth in the coming years. While Apple's history of consistent dividend growth suggests this will happen, the company's income statement gives investors another clue: Apple's current annual dividend payments account for only a fraction of the company's annual earnings. The tech giant has a payout ratio of just 15%. A low payout ratio means Apple has plenty of room to steadily increase its dividend going forward.
Apple prioritizes returning capital to shareholders
Finally, it's worth noting that Apple's management team is currently prioritizing returning capital to shareholders. Apple CEO Luca Maestri reminded investors in the company's most recent earnings call that the iPhone maker's plan is to return cash aggressively enough that its total cash position equals its total debt position (cash neutral). With annualized free cash flow of over $110 billion and a net cash position of $49 billion at the end of the fiscal fourth quarter, you can imagine just how concerted the company will have to be in its efforts to return enough cash to shareholders with both repurchases and dividends to get to cash neutral over time.
Investors, therefore, shouldn't overlook Apple as a good dividend-paying stock just because it has a low dividend yield. The company's strong financials and low payout ratio position the tech company well for more of the consistent dividend growth it has delivered to investors since 2012.
