Prepare for an Apple Dividend Increase

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All corporate executives are tasked with generating alpha, which relates to the somewhat awkward idea of offering the highest rates of return for the least amount of risk. The proper management of risk versus reward is a judgment call that does vary according to the objectives of each individual investor. Aggressive investors target high risk and high reward investments. Alternatively, conservative investors are often willing to accept lower rates of return in exchange for security of principal.

Dividend payments are generally associated with risk mitigation within the equity realm. Dividends shield capital away from the risk of poor corporate governance, while also generating income for patient investors waiting upon capital appreciation. Growth investors, of course, typically prefer corporations that pay minimal dividends, if any, in order to reinvest the majority of capital back into the business and build towards growth. In recent years, multiple blocs of powerful investors have warred between themselves upon whether to classify Apple (NASDAQ:AAPL) as a growth or mature business. A looming dividend increase upon Apple stock is likely to bring these concerns to a head.

Apple Dividend Projections

Declared Date Record Date Payable Date Amount
10/06/95 11/24/95 12/15/95 $0.12
07/24/12 08/13/12 08/16/12 $2.65
10/25/12 11/12/12 11/15/12 $2.65
01/23/13 02/11/13 02/14/13 $2.65
04/23/13 05/13/13 05/16/13 $3.05
07/23/13 08/12/13 08/15/13 $3.05
10/28/13 11/11/13 11/14/13 $3.05
01/27/14 02/10/14 02/13/14 $3.05
04/21/14 (Projection) 05/05/14 (Projection) 05/08/14 (Projection) $3.35 (Projection)
07/14/14 (Projection) 07/28/14 (Projection) 07/31/14 (Projection) $3.35 (Projection)

Source: Apple Financial History

Apple paid out a $2.65 per share dividend on August 16, 2012 to shareholders on record as of August 13, 2012. Apple stock traded for $614.25 upon delivery of this dividend. At this level, Apple offered its investors 1.73 percent in dividend yield. The August 16, 2012 dividend is of particular importance because it represents Apple’s first payout in seventeen years. Until then, Apple had last offered twelve cents per share in quarterly dividends on December 15, 1995. Apple shares closed out the December 15, 1995 trading session at $35.25, which also calculated out to 1.36 percent in dividend yield.

Steve Jobs and Apple brought the revolutionary iPod, iPhone, and iPad platforms to market during a halcyon era that spanned between 2001 and 2010. Apple introduced the concept of a closed ecosystem for telecommunications, computing, gaming, and entertainment to Silicon Valley. Between 2009 and 2012, Apple grew its annual bottom line from $8.24 billion to $41.73 billion, largely behind its integrated model. Apple fiscal 2012-2013 profits, however, did decline from $41.73 billion to $37.04 billion.

Apple Product Maturity

On January 28, 2014, Apple investors took an immediate 8 percent loss, as shares declined from $547.22 to $503.49 during the session. Traders were then digesting an earnings call that forecasted Q2 2014 revenue ranging between $42 billion and $44 billion. Last year, Apple generated $43.6 billion in Q2 2013 revenue. In any event, Apple investors and managers must confront the idea of product transitioning out of hyper-growth and into maturity. Regular annual dividend increases may be in order.

On April 23, 2013, Apple declared that it would be raising its quarterly dividend by 15.1 percent from $2.65 to $3.05 for shareholders on record as of May 13, 2013. Over the course of one year, Apple’s $3.05 quarterly dividend ultimately calculated out to yield 2.3 percent. Going forward, Apple shareholders may expect the company to raise its dividend by 10 percent heading into the next quarterly cycle. The 10 percent increase would result in a $3.35 quarterly dividend, which would also calculate out to a 2.5 percent yield. Apple has already pledged to return $100 billion back to shareholders via dividends and buybacks through the end of 2015.

Despite the slowdown in growth, Apple will remain a cash cow that billionaire investor Carl Icahn may describe as a “no brainer” long-term investment. At worst, prospective Apple investors can expect the stock to maintain pace alongside the S&P 500 Index, while also offering larger dividend payouts over time. Certainly, Apple would then emerge as a core holding for numerous growth and income mutual funds.

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