Apple (NASDAQ:AAPL) stock usually attracts a lot of attention from both investors and the media. Most eyes are typically focused on the company's product launches and massive sales figures, which are obviously very important aspects to watch. However, dividend payments from Apple can sometimes fly under the radar, and investors may want to start paying more attention to cash distributions from the company.
While Apple is not typically considered a top dividend stock, it could easily be one of the most remarkable dividend growth stories in the market over the years ahead, and this should have huge implications when it comes to returns for investors in Apple stock.
Expecting a dividend increase in April
Apple reinstated its dividend in 2012, and increased payments by 15% in 2013 and 8% in 2014. Since the company announced both dividends increases in April, chances are investors will benefit from another hike in April 2015.
Management is committed to distributing capital and listening to shareholders' needs when it comes to dividends and buybacks. CEO Tim Cook said during the company's conference call for the September quarter:
We remain firmly committed to our objective of delivering attractive returns to shareholders through both business performance and return of capital. As we said before, we review our capital allocation regularly. We have solicited feedback on our capital return program from shareholders in the past and we will continue to do so.
Apple is poised for sustained dividend growth
Willingness to distribute cash flows is always an important consideration, but the company needs to have the capability and financial strength to materialize those intentions. Fortunately for investors in Apple stock, there is little doubt that the company has what it takes to sustain dividend growth over the long term.
Apple has a truly rock-solid balance sheet, with more than $155 billion in cash and liquid investments and only $35 billion in debt, for a gargantuan net cash position of nearly $120 billion. Perhaps more important, the company generates tons of cash flows year after year, and everything seems to be indicating that 2015 will be no exception.
Apple produced over $50 billion in free cash flows through the year ended in September 2014. Dividends absorbed only $11 billion of that, while management allocated a jaw-dropping $45 billion to share buybacks. Repurchases are being a priority over dividends, but this doesn't change the fact that Apple produces enormous amounts of cash flows available for distribution, and the company has a lot of room to continue raising dividends in the future.
Wall Street analysts are on average forecasting a year-over-year sales increase of 16.5% for the fiscal year ended in September 2015, while earnings per share are forecast to increase by 21.5% on the back of healthy profit margins and a reduced share count.
These kinds of forecasts are always subject to errors and revisions, so they should be taken with a grain of salt. However, chances are Apple will deliver a material increase in cash flows during the coming year, since the company is already in a very comfortable financial position. Thus investors in Apple stock have strong reasons to expect growing dividends from the company in 2015 and beyond.
Why you should invest in dividend growth stocks
Apple stock is currently playing a modest dividend yield of 1.7%. Even if the company announces a big dividend hike in 2015, dividend yield would hardly be a compelling reason to invest in Apple. However, there is much more to dividend investing than yield. It's remarkably important to keep in mind that dividend growth can be a powerful return driver for investors.
Companies with consistent dividend growth tend to outperform the market over the long term. According to data from a research report by Goldman Sachs, a $100 position in companies raising their dividends on an annual basis would have turned to $4,169 from 1972 to 2013. The same amount of money invested in the S&P 500 Index would have turned to a considerably smaller $1,622 over that period.
Dividends don't only provide income to investors, they also say a lot about a company's fundamental quality and financial strength, and this has some big implications on a total return basis. Apple is on track to delivering substantial dividend growth in 2015 and beyond, and this is a major positive for investors in Apple stock.
Andrés Cardenal owns shares of Apple, and he is planning to collect growing dividends from the company in the coming years. Andrés owns an iPhone, an iPad, and a Mac. Those don´t pay any cash dividends, but there is much more to happiness than money. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. 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.