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Apple, Inc.'s Dividend Is Looking Solid -- Time to Buy?

By Daniel Sparks - Feb 14, 2016 at 5:30PM

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The company's dividend yield has jumped from 1.5% in to 2.2% in the past 12 months -- and the tech giant is about to announce another dividend increase. Take a look for yourself.

With Apple (AAPL -0.23%) stock down about 19% during the past three months, the company's dividend yield is starting to look better. Indeed, with the stock at these levels, Apple has a dividend yield of 2.2%, high enough for dividend investors to at least take a closer look. Sure, 2.2% isn't strong enough for income investors to get excited, but it may be worth a bite once its growth potential is taken into account.

Apple's dividend history
Apple's history of dividends is both short and sweet. Initiating its dividend in 2012, the company has only been consistently paying out an annual dividend for about three and a half years. But this short dividend history is at least marked by some nice increases. Since the company paid out its first dividend in August 2012, Apple's dividend payout has rose 38%, increasing each year.

Apple's most recent dividend increase was in 2015. The quarterly dividend increased from $0.47 in 2014 to $0.52 in 2015, representing a meaningful 11% increase.

Notably, Apple has openly stated that it plans to increase its dividend every year. So the company's next dividend payout, which should occur in May, should actually be higher than $0.52, as the company has already paid out four quarters of dividend at these levels.

In previous years, Apple has announced its annual dividend increases when it reports second quarter results in April. During the company's first-quarter earnings call in January, management indicated that it planed to provide an update on its capital return program the same time this year. So investors can expect to find out by how much Apple will increase its dividend this year in about two months.

Expect another meaningful dividend increase
There are plenty of reasons to expect another meaningful increase to Apple's dividend this year -- and many more years to come, for that matter. The reasons all boil down to the company's fat balance sheet and its heady cash flow.

Apple store. Image source: Apple.

On Apple's balance sheet, the company boasts a whopping $215.7 billion in cash plus marketable securities, notably up $10.1 billion in a single quarter. And during the company's trailing 12 months, Apple generated a whopping $63 billion in free cash flow, or the cash from operations left over after capital expenditures are deducted.

And how much of this cash is Apple returning to investors through dividends? Only about $12 billion annually. Clearly, the company has plenty of room for more dividend increases. No wonder management can openly tell investors it plans to increase its dividend annually.

One common way dividend investors like to analyze potential income investments dividends is by looking at payout ratios, or dividend payouts as a portion of earnings. Apple aces this metric, with a payout ratio of just 22%. This low payout ratio leaves plenty of earnings for Apple to continue to apply toward its aggressive share repurchase program and to put toward its cash hoard for future investments or acquisitions. And it also leaves plenty of wiggle room for the dividend if Apple faces any significant headwinds that could pressure earnings; in other words, Apple could still increase its dividend on an annual basis even if EPS growth stalls or even begins to decline.

With Apple's dividend yield climbing from about 1.5% to 2.2% during the past twelve months thanks to a falling stock price, it's a good time to buy this dividend stock. And, as a nice bonus, investors will likely get yet another dividend increase in a few months.

Daniel Sparks owns shares of Apple. The Motley Fool owns shares of and recommends 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.

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