Over the past six months, many companies have reduced or suspended dividends in order to conserve cash throughout the COVID-19 pandemic. As those streams of passive income dried up, investors in companies like Apple likely considered themselves lucky as long as their stocks maintained their existing dividend payments.
“However,” tech and consumer goods specialist Leo Sun writes, “there are still plenty of cash-rich companies that can easily afford to double their existing dividends without missing a beat.”
Apple reinstated its long-suspended dividend back in 2012, and it subsequently raised its payout every year. However, the stock’s multi-year rally reduced its forward yield from over 2% in 2016 to just 0.7% today.
That paltry payout won’t attract any serious income investors, but Apple spent less than 20% of its free cash flow on its dividend over the past 12 months — which suggests it can easily afford to double its current yield.
Over the long term, it needs to curb its long-term dependence on the iPhone while expanding into next-gen hardware markets. That transition could be challenging, and investors are putting a lot of faith in Apple, as its stock trades at over 30 times forward earnings. Therefore, Apple could reward patient investors for sticking around as its valuations throttle the stock’s near-term growth.
MacDailyNews Take: After the surprising 4-for-1 split, anything is possible. Possible, but not likely, as we expect Apple would be more interested in investing in buybacks over a major dividend increase.