Is Apple A Good Dividend Stock?

Daniel Martins

Apple has been paying a dividend since 2012. According to Investopedia, the Cupertino company “surpassed dividend darling Exxon in 2017 to pay the biggest dividend in the world”. Last fiscal year, Apple disbursed a whopping $14 billion in payments to shareholders, which is more than global giants like Alibaba, Walt Disney and PepsiCo were able to generate in net profits last year.

Yet, Apple is hardly ever thought of as a good dividend play for income-seeking investors. Might they be overlooking something?

Why Apple is not considered a dividend play

Let’s address the elephant in the room first. Apple is rarely a top of mind stock for dividend investors for a simple reason: it currently yields only 0.85%. Therefore, if a retiree were to invest today all her $1 million into Apple stock in hopes of living off the dividend payments (already a bad idea, from a diversification perspective), she would collect only $8,500 per year.

To be fair, I don’t think that the problem are the payments themselves: a projected $3.28 per share in fiscal 2020 would be just fine if the stock price were low enough. The issue is that Apple shares have skyrocketed since the company started paying a dividend – six-fold in less than a decade. Therefore, it currently “costs too much” to buy Apple’s dividend stream.

Why Apple could be a dividend play

But if you are looking for dividends, don’t write off Apple just yet. Here are some of the reasons that might make income-seeking investors think twice about this stock:

  • We currently live in a zero-rate environment. In the US, the average interest rate for savings accounts is only 0.1%, which is well below Apple’s dividend yield. Here’s a different way to think about it: in early 2019, Apple’s yield of 2.0% was nearly half a percentage point lower than the Federal funds rate that an investor could get by buying short-term treasuries. Today, it is about 80 basis points better (i.e. 0.8 percentage point).
  • Even though the stock has been rising fast, Apple’s dividends have also been growing: the payments increased by a factor of four since 2012. Between fiscal 2019 and 2020, the increase is expected to be a healthy 8%. Should the company keep the same dividend growth pace going forward, an Apple investor interested in the dividends could easily keep up with inflation, even if it rises to multi-decade highs, and then some.
  • Few think about dividend coverage, i.e. a company’s ability to finance its dividend payments from earnings or free cash flow. For several reasons that range from consistent revenue generation to strong margins to competent working capital management and the pile of cash currently sitting in the balance sheet, I think that Apple is one of the companies most capable of maintaining and growing its dividend commitments.
  • Apple spends nearly five times more cash buying back its own stock than paying dividends to shareholders. Not that Apple will, but it could shift its cash distribution strategy in the future to favor dividend payments, especially if the Board deems the stock price to be too rich to be repurchased aggressively.
  • Apple’s share price has corrected beyond 20% from peak levels several times in the past eight years: in 2013-2014, 2016, 2019 and most recently in March 2020 (see graph below). A bit of patience, therefore, could pay off. Should the stock pull back by 20% once again soon, the dividend yield would increase above 1%.

Explore more data and graphs

Much of the data used in this report was provided by Stock Rover. I have been impressed with the breadth and depth of information on markets, stocks and ETFs that this platform provides. Stock Rover also helps to set up detailed filters, track custom portfolios and measure their performance relative to a number of benchmarks.

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(Disclaimers: the author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)

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