Apple's Dividend Will Drive Shares Higher This Quarter And Beyond

| About: Apple Inc. (AAPL)

On March 19th of this year Apple (AAPL) announced that it will begin paying a $2.65/share dividend to shareholders beginning in the quarter starting with July 1, 2012. With Apple's earnings release on Tuesday July 24th, we may also learn when the first dividend will be paid during the July to September period.

Once the payment date is announced, many conservative mutual funds, institutions and investors will begin plans to accumulate Apple shares for the first time. With an annual dividend of $10.60/share and yield of about 1.8%, the dividend may appear to be relatively modest, but it is significantly higher than the average dividend yield of .8% estimated for all tech companies. In addition, Apple's new dividend payout will represent over 30% of all dividends paid by the S&P Technology Sector in 2013.

However, it is Apple's high surplus cash position on its balance sheet (~100 $billion) and its annual cash-flow growth which will drive dividend payouts higher in the future. Below is a summary of Apple's recent annual net cash-flows from operations for years 2009 to 2011 as well as projections for 2012 and 2016:

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The 2012 estimate assumes a 33% growth in net cash-flow from 2011 to 2012 and the 2016 estimate assumes an 8% average annual increase in net cash-flow from 2012 to 2016. Even under this extremely conservative future cash-flow growth scenario, Apple will still have enough cash to increase its dividend payout significantly over time.

The annual dividend of $10.60/share will cost Apple about $10 billion per year. This is currently less than 25% of their annual earnings. I believe Apple will likely double their current dividend payout over the next 5 years. An increasing dividend yield will support a higher stock price valuation in future years, even as revenue and earnings growth rate ultimately slows as the size of the company and its annual revenue increases.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AAPL over the next 72 hours.