When Can Your Dividend Index Include Apple?

Mar.22.12 | About: Apple Inc. (AAPL)

Co-authored by Christopher Gannatti, Research Analyst, WisdomTree

Show Me the Money

Previously, we wrote a piece titled "When Will Apple And Google Start Paying Dividends?" discussing implications of a hypothetical Apple dividend. On March 19th, Apple (NASDAQ:AAPL) actually announced a $2.65 quarterly dividend ($10.60 per year[1]). Given the current number of shares outstanding, this would equate to nearly $10 billion in indicated cash dividend distributions[2] over Apple's first full calendar year of dividend payments[3]. With this level of indicated annual dividend payments, Apple has catapulted itself to be the second largest dividend payer in the United States[4] (rivaling its position as the largest market capitalization[5] stock and thus largest weight in indexes such as the Russell 1000 Index, the Russell 3000 Index and the S&P 500 Index).

Now that the dividend payment has become a reality, we thought it would be helpful to re-focus attention on when the various dividend focused indexes[6] can include Apple for the first time.

Potential Dividend-Focused Index Exposure to Apple

Figure 1 provides a summary of the dividend eligibility requirements of three of the most widely tracked U.S. dividend-focused indexes, as well as the WisdomTree Dividend Index and the WisdomTree LargeCap Dividend Index. Figure 1 also shows whether or not the top five dividend-paying information technology firms[7] are included, eligible, or excluded from the indexes. The years indicate when the specified constituents could become eligible for inclusion, given the fact that they meet the appropriate requirements.

With Apple's first dividend now coming in 2012, the first time it could meet the requirements for ten consecutive years of dividend increases as required by the Mergent Dividend Achievers Select Index is 2023 (that is assuming it raises its dividend ever year between now and then); the first time it could be eligible for the S&P High Yield Dividend Aristocrats Index would be 2038 (that is assuming it raises its dividend every year between now and 2038); the first time it could be eligible for the Dow Jones Dividend Select Index would be 2017 (assuming it also was one of the 100 highest dividend-yielding stocks[8], which Apple was not currently, and in which no technology company is currently included).

By contrast, WisdomTree established its dividend indexes to be very broadly inclusive of the dividend paying universe and to be able to include companies at its next screening date after they first pay their dividends. Apple definitely surprised the world by instantly becoming the second biggest dividend payer on the basis of its indicated cash dividends, and we would expect to include it as such a weight at our next annual index re-balance which occurs in December[9], provided that the other eligibility requirements for inclusion are still met.

Figure 1: A Look at Five Dividend-Focused U.S. Equity Indexes

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We anticipated this action could occur and profiled an extended look at how the potential initiation of dividends at AAPL could impact dividend focused indexes. To read that full analysis, please click here.

Unless otherwise stated, data source is WisdomTree.

Index Definitions:

WisdomTree LargeCap Dividend Index: Fundamentally-weighted index that measures the performance of the large-capitalization segment of the U.S. dividend-paying market, dividend-weighted annually.

WisdomTree Dividend Index: Fundamentally-weighted index that measures the performance of the broad U.S. dividend-paying market, dividend-weighted annually.

WisdomTree Earnings Index: Fundamentally-weighted index that measures the performance of earnings-generating companies within the broad U.S. stock market.

S&P 500 Index: Market capitalization-weighted index of 500 stocks selected by the Standard & Poor's Index Committee designed to represent the performance of the leading industries in the United States economy.

Russell 1000 Index: A measure of the 1,000 largest companies in the Russell 3000 Index.

Russell 3000 Index: Measures the performance of the 3,000 largest U.S. companies based on total market capitalization.

Mergent Dividend Achiever Select Index: Designed to track the performance of dividend paying companies in the U.S. that have increased their annual dividend payments for the last 10 or more consecutive years.

S&P High Yield Dividend Aristocrats Index: Designed to track the performance of dividend paying companies in the U.S. that have increased their annual dividend payments for the last 25 or more consecutive years.

Dow Jones U.S. Select Dividend Index: Measures the performance of 100 U.S. dividend-paying companies.

WisdomTree Funds are distributed by ALPS Distributors, Inc.

Jeremy Schwartz and Christopher Gannatti are registered representatives of ALPS Distributors, Inc.

WIS003912 2/2013

[1]$10.60 per year is sourced from Bloomberg. In the U.S., given the historical consistency of dividend policies it has become standard industry practice to annualize a firm's declared quarterly dividend to determine a firm's indicated dividends over the coming year.

[2]Indicated cash dividend distributions (indicated annual dividend payments) refer to a firm's indicated dividends per share multiplied by its shares outstanding. Indicated annual dividend payments are how WisdomTree calculates the dividend stream for each constituent within its U.S. dividend indexes. The measure looks forward in time at the dividends the firm has declared it will pay to shareholders, typically over the coming year.

[3]Apple conducted a conference call for investors & analysts on 3/19/2012. Dividend record and payable dates are set to be announced on the July 2012 earnings call, with the ex dividend date listed on Bloomberg as 9/10/12. The $10 billion in indicated cash dividends is indicated to be paid over a time period starting on the payable date (has not been officially determined) and extending one year into the future from this date. For simplicity: Record date-shareholders as of this date are eligible for the dividend; Payable Date-dividend is paid on this date; Ex-Dividend Date-share price typically drops on this date to reflect the upcoming dividend payment.

[4]Apple's rank as the second largest dividend payer in the U.S. is as of its dividend declaration on 3/19/2012, comparing its indicated annual dividend payments to the other firms in the WisdomTree Dividend Index as of 3/19/2012.

[5] Market capitalization-weighted: Market cap = share price x number of shares outstanding. To weight by market cap, add all of the individual constituent market caps for each constituent. The proportional contribution of each to the total index market cap is the subsequent market cap-weight.

[6] Equity indexes that measure the performance specifically of dividend-paying firms and exclude non-dividend payers

[7]"Top 5" refers to the five firms classified in the information technology sector that have the highest indicated annual dividend payments (and therefore the highest weights) within the WisdomTree Dividend Index.

[8]Dividend-yielding refers to the Dow Jones methodology which stipulates firms must be ranked in the top 100 on the basis of indicated dividend yield, which puts the firm's indicated annual dividend over its current share price.

[9]WisdomTree's Domestic Dividend Indexes are screened on November 30th of every year, with implementation of the reconstitution occurring in December. Apple's indicated annual dividend stream on that date will be compared to the dividend streams of the other firms within the WisdomTree Dividend Index. Were the screen to be run on 3/19/2012, Apple would have been ranked second. We cannot state with certainty what Apple's rank may be based on the 11/30/2012 screen which has yet to occur.

Disclosure: I am long DLN, MSFT, INTC, CSCO.