Apple Dividend Stock Analysis
Apple dividend growth has accelerated recently. And Apple stock has retreated from recent highs. So let’s check out the Apple dividend from a dividend growth stock investors perspective.
In a recent Dividends Diversify review of companies in the technology sector, I noted the gigantic cash holdings these companies carry. In addition, I questioned if the new tax law might result in larger dividend increases and faster dividend growth from companies in the sector.
Note: This article was updated in January 2019.
Apple was one of 5 cash rich, blue chip technology companies highlighted in the article. With fiscal 2018 earnings in the books, an Apple dividend increase announcement during the year and another one coming soon, let’s take a closer look at this well-known tech company.
So, please join me for a dividend deep dive of Apple. The company’s stock trades on the Nasdaq stock exchange under the symbol, AAPL.
Headquartered in Cupertino, California, Apple designs, manufactures and markets mobile communication devices, media devices and personal computers. In addition, they sell a variety of related software, services, accessories, networking solutions and third-party digital content and applications.
The company’s hardware products include the:
- iPhone smart phone
- iPad tablet computer
- Mac personal computer
- Apple Watch
- Apple TV
Apple’s software includes:
- macOS, iOS, watchOS and tvOS operating systems
- Apple Pay
Digital content and services are composed of the:
- Apple Music
- iTunes Store
- App Store
- Mac App Store
- TV App Store
- iBooks Store
APPLE DIVIDEND YIELD
Apple is paying an annualized forward dividend of $2.92 cents per share. This represents a 1.9% Apple dividend yield at the recent Apple stock price of $153 per share.
APPLE DIVIDEND GROWTH RATE
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The current Apple dividend was initiated in mid-2012. During that year they started paying a regular quarterly dividend and have continued to do so ever since. Prior to that, the company had not paid a dividend to its shareholders since 1995.
In May of 2018 management announced a 15.9% increase to the Apple dividend. This increase was clearly a break from trend. In prior years, Apple annually raised the dividend about 10%.
Apple’s revenue peaked in 2015 at $234 billion. During 2016, as revenue declined there were concerns about the future revenue generating capacity of the company.
At the time, iPhone accounted for a very large portion of the company’s revenue and profit. The smart phone market was maturing. Competition was catching up. In addition, customers upgraded their phones less frequently. This was mainly due to the annual changes from phone to phone becoming less dramatic. As sales slumped, so did the stock price. It made its most recent bottom of $90 per share in May 2016.
Since then, the stock has never looked back. The company has gone through a fundamental transformation. They have turned a business centered on how many devices it ships into one built around high-end features and services for those devices.
Revenue reached a new high in fiscal 2018 clocking in at a little over $265 billion. In contrast, revenue growth appears to be stalling again. Estimates for fiscal year 2019 reflect a decline from 2018.
Apple has implemented a premium pricing strategy with its new iPhones. Although this may protect their gross margins, that may come at the expense of lower revenues.
APPLE DIVIDEND PAYOUT & EARNINGS
From a 2018 earnings perspective, the company achieved almost 30% year over year growth. And with that growth, 2018 was a record year.
2019 is a different story. With revenue growth stalling, so are profits. Earnings per share are expected to be roughly the same in 2019 as 2018.
The dividend payout ratio is running around 25% of either earnings per share or free cash flow. This is certainly a very secure level. The dividend appears safe and has room to grow even if earnings growth stalls out.
A lower dividend payout ratio is a positive metric. It shows the company has ample room to raise the dividend in coming years. Or, withstand an earnings drop without having to reduce the dividend.
CREDIT RATING AND BALANCE SHEET
Apple carries an Aa1 and AA+ credit rating from Moody’s and S&P, respectively. This is a very strong rating of “investment grade – very low credit risk.” The rating is only one grade below triple A, representing the highest possible credit rating.
It is pretty clear that Apple will be able meet both its short term and long term obligations as they come due!
The only two US companies to hold the highest triple A credit rating are Johnson & Johnson and Microsoft.
With the combination of a stock market correction and suspect Apple profit growth for 2019, Apple’s stock is well off its recent highs. The forward price to earnings ratio is down to nearly 12 times forecasted fiscal year 2019 earnings.
This is a very low level for such a high quality company. It reflects the uncertainty of future growth for a company and industry that requires constant innovation.
APPLE DIVIDEND WRAP UP
Apple isn’t your father’s dividend growth stock. It doesn’t operate in your traditional steady demand industry like consumer staples or utilities. The company’s growth is partly dependent on managing short product life cycles. In addition, continual and consistent product and service innovation is an ongoing requirement.
I have a moderate size position in Apple. I intend to hold and would consider buying at a price below $140 per share. This would equate to a 2.1% Apple dividend yield. Unfortunately, the dividend yield for Apple is still a little lower than I prefer at the current stock price.
I will let this winner ride and put my money elsewhere for now. There are many other good dividend paying stocks at reasonable prices in the market right now for me to consider before adding to Apple.
OTHER RELATED ARTICLES
I hope you liked this post. If so, here are a couple others that you may find interesting:
- The process I use for dividend stock analysis: Dividend Deep Dive
- The Dividends Diversify model portfolio where Apple resides: Dividends Deluxe
- I don’t get all my stock picks right like Apple. Check out what I learned by investing in one of my worst investments, General Electric
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