Apple: Dividend Raise Coming Soon

Summary

• Fiscal Q2 report is scheduled for April 28th.
• Investors expecting annual dividend raise.
• I don't see a major increase coming.

Photo by ONYXprj/iStock via Getty Images

Last month, I discussed how technology giant Apple (NASDAQ:AAPL) would likely continue buying back large amounts of stock for quite some time. With the company producing tremendous free cash flow, it has rewarded investors with over half a trillion dollars in capital returns over the past decade. Today, I'm here to discuss the second half of the equation, which is the potential dividend raise that many are looking for later this month.

Before we start looking forward, let's take a quick look back. Apple restarted its dividend program back in 2012, at which point it was paying out $2.65 a quarter. Since then, there have been two stock splits, so that figure adjusts out to less than 9.5 cents today. In the chart below, you can see what the last five dividend raises have resulted in. Apple originally raised the dividend in 2020 to $0.82 per share, but after the 4 for 1 stock split later in the year, that number came down to the current payout of $0.205 per quarter.

(Source: Seeking Alpha Apple dividend history, seen here)

Last year, the company raised its dividend by a nickel per share, or a cent and a quarter split adjusted. That worked out to a 6.49% raise, which was the second straight year where the percentage increase was in the mid single digits. Over the past five years, the compounded raise amount has been a little more than 9.5% per year. I know some investors have been disappointed by that given Apple's tremendous cash flow, but management has preferred the buyback over time.

Even though Apple has returned over half a trillion in capital to investors over the years, it still had a net cash balance of $84 billion at the end of the December fiscal quarter. The company has averaged over $65 billion in free cash flow per year in its last three years. With a huge projected surge in net income during the current fiscal year, ending this September, Apple could end up generating more than $80 billion in free cash flow for the 12 month period.

Interestingly enough, Apple's most recent 10-K filing showed the company paid out less in dividend and equivalents in fiscal 2020 than it did in fiscal 2019. Still, a more than $14 billion yearly payout is nothing to shrug off. That was mostly a function of the tremendous share buyback plan, which has continued to bring the outstanding share count down nicely as seen below.

(Source: Apple quarterly filings, seen here)

When the 10-Q filing came out in January, the share count was down 4.08% over the past 12 months, give or take a few days. That's a nice decline for any company in just one year, although it did trail the past two years for Apple. This was because of the tremendous surge in shares, so even though there was more spent on the buyback, the money just didn't go as far. Remember, this stock a year ago was trading at about half of where it is currently.

Because management has been so focused on the buyback, I've never been one thinking we'll see large dividend raises, even with the present cash flow picture. As a result, I see another nice but not spectacular raise coming soon, and in the table below I've detailed what such an increase could look like. My personal prediction range is in yellow, with my base assumption being a 7.32% increase to $0.22 per quarter.

*As of close on 4/1 of $123.00 per share.

This would be a bit more than we saw with last year's raise, although it still means that Apple is not a very high-yielding name. As of last week's close, the name was in the bottom 50 in terms of annual yield for S&P 500 companies. Of course, many investors will point out that the dividend is not the main reason for buying this stock. Right now, this annual dividend will get you about the same amount of yearly yield as the average between the 3-Year and 5-Year US Treasury notes.

In the end, we should be just a few weeks away from a dividend raise from Apple. With tremendous free cash flow allowing the share count to come down nicely over time, the dividend has more than doubled since the program was restarted. While the name may not have the yield that some are hoping for, it's a part of the greatest capital return plan we've ever seen. Every little bit of income helps, and I do think we'll see another mid-to-high single digits percentage increase this year.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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