Apple (NASDAQ:AAPL) shares have found stability after a rough patch of trading in late 2012. One of the key reasons for this recovery has been aggressive programs to return capital to shareholders. Yet, given Apple's payout ratio versus peers like International Business Machines (NYSE:IBM) and Intel (NASDAQ:INTC), along with a long-elapsed period of time since making major modifications, we could soon receive two major announcements that will drive shares significantly higher.

Two things that Apple needs to announce
In Apple's recovery from under $400 to its current price of $536, the company's dividend and buyback have likely been most responsible for this performance. In April 2013, Apple's quarterly dividend was $2.65 and its stock price was $390. Then, in May it raised the dividend to $3.05, and the stock began to trade higher.

The company also implemented a $60 billion buyback program. Furthermore, after its disappointing first-quarter 2014 earnings report, Apple spent $14 billion of this buyback in a two-week span, which helped to boost shares from under $500 to over $540. To date, all but $20 billion of the buyback program has been spent.

With both things considered, Apple needs to, and very well might, announce a higher dividend and a larger buyback program as investors await the company's new product cycle.

Why the dividend?
In retrospect, Apple should increase its dividend and likely will because its current payout is poor relative to its peers.


Operating Margin

Dividend Yield

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The above chart shows Apple compared to its top peers -- all of whom trade at 13 times earnings -- in terms of the amount of annual profits that are paid in dividends and how much profit is earned from each company's operations. This is important as high, sustainable margins are necessary to ensure that a company's payout ratio isn't too high relative to its dividend. Hence, companies that earn higher profits can afford to pay larger dividends without it weighing too heavily on its future operations.

For example, Intel pays a 53% higher dividend yield than Apple. However, its payout ratio is 66% higher due to Apple having higher operating margins. With that said, Apple's operating margin declined from 35.3% in 2012 to its current 28.3% in the last 12 months, which might explain why the company didn't make any changes to its dividend in the last year. Hence, Apple wanted to ensure that it could easily afford a higher dividend.

However, Apple's margins are now showing stability, and are expected to remain stable over the next year. Therefore, it seems logical, if not probable, that Apple will increase its dividend soon, which will be a key catalyst for the stock.

Why the buyback?
In regards to a buyback, Apple is nearing the end of its $60 billion program, and despite this payout, the company is still accumulating cash quickly. Currently, Apple has $160 billion in cash, and during the last 12 months has created $53 billion in operating cash flow. Thus, it has the money for a larger buyback program.

As an investor, a larger buyback program is imperative, and if you need proof, just ask IBM investors. During the last five years, IBM has cut its share count by 20% due to high buybacks, which has driven its EPS higher as a result.

With that said, IBM's revenue during this period has been essentially flat. Yet, its stock has doubled, something we can only attribute to an aggressive buyback program. Already, Apple has cut its shares outstanding by 5%, which has increased as a percentage due to the buybacks following its first-quarter report and the likelihood of further buybacks in the last two months.

Given the company's success with its buyback program, its mounting cash position, and activist shareholders like Carl Icahn pressing hard for a larger program, investors should anticipate a larger buyback announcement, which could come in this upcoming earnings release as the current program ends.

Final thoughts
When you look at the benefit of a higher dividend and large buyback program, combined with the amount of cash that Apple has on hand, it seems almost certain that the company will boost both programs in the near future.

If so, investors should like the chances of Apple trading higher, and at only 13 times earnings, the stock is cheap and presenting a solid investment opportunity.

Brian Nichols owns shares of Apple. The Motley Fool recommends and owns shares of Apple and Intel. It also owns shares of IBM. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.