Apple's (AAPL +1.20%) earnings report last week sent the tech stock sharply higher. Investors were impressed with the company's better-than-expected revenue and earnings per share. The upside to the quarter was largely driven by iPhone sales coming in much better than expected. Total iPhone sales were higher than any fiscal second quarter yet. Apple's smartphone revenue rose 2% year over year to $51.3 billion "despite significant foreign exchange headwinds and a challenging macroeconomic environment," said Apple chief financial officer Luca Maestri during the company's earnings call.
While Apple's financial performance for the period was impressive (particularly considering the macroeconomic headwinds the company is facing) there's another facet of the update worth exploring: Yet another dividend increase from the tech giant. The dividend hike meant Apple added to its growing streak of increasing its dividend every year.
Here's a look at the company's dividend increase, as well as another key way the company is using its excess cash to build shareholder value.
NASDAQ: AAPL
Key Data Points
Dividend growth
Apple will increase its quarterly dividend by 4%, management revealed in its earnings report on May 4. This new quarterly dividend comes out to $0.24, which equals $0.96 of dividends on an annual basis. This payout gives Apple a dividend yield of about 0.6%.
Though this is a small dividend, investors should note that the tech giant makes up for its small payout with prospects for continued dividend growth for years to come. Indeed, Apple has already demonstrated its ability to increase its dividend by raising it each and every year since its dividend was initiated in 2012. That means Apple's latest dividend hike is its eleventh consecutive annual increase.
Apple will pay this dividend on May 18 to shareholders of record as of the close of business on May 15.
The company's history of dividend growth is evidence that management is making a habit of regularly increasing its dividend. But the best case for investors to expect continued dividend growth is Apple's low payout ratio. The iPhone maker is paying out just 16% of its earnings in dividends. This means there is plenty of room for the dividend to increase over the next decade. Contrary to Apple's current payout ratio, many dividend stocks safely operate with payout ratios greater than 50%.
Apple's stock buyback program
Looking beyond Apple's dividend, the primary way the company is returning cash to shareholders (albeit indirectly) is its share repurchase program.
Apple used its fiscal second-quarter update as an opportunity to authorize an additional $90 billion for share repurchases. The move reflects management's "confidence in Apple's future and the value we see in our stock," Maestri said in the earnings release.
The company has been spending huge sums on repurchases. In fiscal Q2, Apple spent $19.1 billion on share repurchases. This compares to $3.7 billion spent on dividends during the quarter.
Looking ahead, Apple is likely to persist in spending massive sums on repurchases and increasing its dividend on an annual basis. The company currently has $166 billion in cash and marketable securities on its balance sheet, with total debt of $110 billion. This leaves Apple with a net cash position of $57 billion. It's management's goal to get to net cash neutral over time. This will take a big effort from the company when it comes to dividends and repurchases since Apple's business generates around $100 billion of free cash flow annually.
