It has been a spectacular year for Apple (AAPL 2.20%) stock. Shares have soared more than 30% year to date. While the stock's big gain has been the primary way the company has enriched shareholders this year, it utilizes another method to reward shareholders as well: dividends. In fact, the company has been paying dividends to shareholders every quarter for 11 years.
This is a timely topic this week, as the iPhone maker has made a habit of announcing dividend increases every year alongside its fiscal second-quarter earnings report, and Apple is scheduled to report results for this period on Thursday. Even more, the tech company similarly uses its fiscal second-quarter earnings report to provide an update on its share repurchase program (another way profitable companies return cash to shareholders, albeit indirectly).
Here's what investors should look for on Thursday when it comes to Apple's capital return program, including both its dividend and its share repurchase authorization.
How Apple returns cash to shareholders
Apple has been paying quarterly dividends to shareholders since 2012, when it initiated its dividend. Even more, the company has increased its dividend every year, starting with its first increase in 2013. This decade of consecutive annual dividend increases and occasional comments from Apple management about the company's commitment to annual increases combine to make a good case for another dividend increase this year.
Unfortunately, it's difficult to guess the amount Apple will increase its dividend by. Last year, its dividend rose 5%. Since this was the company's lowest percent increase in its annual dividend yet, it could be concluded that a more robust dividend increase is likely this year. On the other hand, Apple reported negative growth in revenue and earnings in its most recent quarter, and more of the same is expected from fiscal Q2. With Apple's business facing some headwinds, management could opt to maintain its conservative dividend increases for the time being.
Of course, many investors may be even more interested in the company's share repurchase program than Apple's dividend. Historically, the company has spent significantly more on repurchases than dividends. To this end, Apple spent $94 billion on repurchases over the trailing-12-month reported period and paid less than $15 billion in dividends. Given Apple's historical preference for favoring repurchases over dividends, another big increase to its share repurchase authorization is almost inevitable. Last year, Apple increased its share repurchase program by $90 billion.
Plenty of cash to go around
Keep in mind that it's not a challenge at all for Apple to pay a growing dividend and to repurchase shares aggressively. First, consider that Apple is only paying out about 16% of its earnings in dividends. Second, investors should note that Apple has $165 billion of cash and marketable securities on its balance sheet.
Net of its debt, it still has $54 billion of cash and marketable securities. Management has insisted that it doesn't need this much cash to operate its business. To this end, it's made a goal to become net cash-neutral (the point at which its debt is equal to its cash and marketable securities) over time. This may sound risky until you realize that Apple's profitable business model generates around $100 billion of free cash flow annually.
All of this to say, Apple is swimming in cash. No wonder it wants to reward shareholders with dividend growth and share repurchases.
The tech giant will likely provide updates on both of these important aspects of its capital return program later this week, after market close on Thursday, May 4, when Apple is scheduled to report its fiscal second-quarter results.
