There was a time when Apple (NASDAQ:AAPL) wasn’t a dividend-paying stock and investors wouldn’t have associated it with payouts. That script flipped dramatically in recent years.
These days, the iPhone maker isn’t just an impressive dividend growth story. It’s one of the largest dividend payers in dollar terms among U.S. companies. The group of exchange traded funds tethered to Apple payouts includes the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM).
Both Invesco ETFs follow the Nasdaq-100 Index, which yields just 0.48%, or 19 basis points below Apple’s dividend yield. The bulk of the index’s dividend strength is tied to Apple and Microsoft (NASDAQ:MSFT), though other components are getting into the dividend game. While Apple’s yield is undoubtedly low, it also implies there’s ample room for growth.
“Even beyond yield, other metrics suggest that Apple (ticker: AAPL) could be doing more with its payout. Based on the last fiscal year’s earnings of $5.61 a share, Apple’s dividend payout ratio is about 16%—not that high, though technology companies tend to pay out a lower ratio of earnings than the overall market’s ratio of about 30%,” reports Lawrence Strauss for Barron’s. “Apple also lags behind the broader market and even its own sector in yield: S&P 500 technology companies recently yielded about 1%, compared with 1.6% for the broader market, according to FactSet.”
On the surface, it appears as though Apple is being cheap with its dividend. A case can be made that this is accurate, but it pays to remember that the iPad maker is a relatively new dividend payer and has been a dependable dividend grower since introducing its payout.
Plus, Apple doesn’t skimp when it comes to overall shareholder rewards, as the company is consistently one of the largest buyers of its own shares.
“When it comes to capital returns, Apple emphasizes share repurchases, which totaled about $86 billion for its common stock last year, over dividends. Stock buybacks are seen as way to boost earnings growth, partly because the profits get spread across fewer shares,” according to Barron’s.
Last month, Apple said that it’s boosting its payout by 4.5% — which is good news for QQQ and QQQM investors because those ETFs each allocate more than 12% of their weights to the tech stock. Though the company appears committed to growing the payout, it didn’t discuss future plans for the dividend in percentage terms.
For now, Apple prefers buybacks to dividends, and in order to earnestly boost the latter, the company would likely have to trim the former. On the upside, investors can embrace Apple as a total shareholder reward play, knowing that it has the resources to support both buyback and payout growth.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
