Apple, Inc. (
) shares have continued to plummet recently, sending shock waves
through the market. One possible solution for the company is to
double its quarterly dividend payout and attract a whole slew of
It was not too long ago that Apple was trading around $700 per
share, but a lot has changed in the past two months since those
all-time highs. Now the company is trading in the mid-$500 range.
With this -20% drop, Wall Street insiders are mixed about the
potential for this mega-cap company; some are weary of the weak
outlook for Apple in 2013 while others see substantial potential
growth in the next year. Analysts are struggling to determine what
position to take on this stock. This conflict of ideas is one
reason why the stock has dropped as much as it has. Now Apple needs
to find ways to bump up its shareholder value. How, you ask?
Dividends, of course!
In August of 2012, for the first time since the mid-90′s, Apple
paid a dividend to its investors. This move signaled a sign that
the company was moving away from its former place as a strictly
growth-based company, to a more mature place in the markets. Though
the dividend was a good first step toward the future, the recent
sudden drop in price shows the potential vulnerability in the
company. Previous market giants have experienced similar falls.
Without adapting to the change in market valuation, it could result
in even steeper depreciation. The company needs to reevaluate
itself to see that it has not taken the necessary steps to ensure a
steady stream in appreciation. The initial dividend was a good
start to position itself for the future, but it did not go far
enough. The problems could be solved if Apple were to double its
The Value Proposition
Apple's annualized dividend payout of $10.60 per share gives the
stock a current dividend yield of about 1.97%. If Apple could
double its dividend to a yield of around 4%, it would nearly put it
in line with income investing stalwarts like Con Ed (
) and Bristol Myers (
), but still trailing the 5%+ yields of top income plays like
) and Altria (
Such a move would immediately make Apple shares attractive to
dividend investors who previously have avoided it due to its
low-ish yield. A floor under the stock price would likely develop
with a ~4% yield, however, given the influx of income-oriented
They Can Afford It
With a current annualized dividend of $10.60 per share versus an
average 2013 analyst EPS estimate of $50.30 per share, Apple's
current dividend payout ratio is just 21%. This statistic is in
line with a company that is more focused on investing its revenue
back into the company for greater growth and innovation. That is
not the place that Apple should be in right now; it is in a
position where it needs to be a shareholder-focused company to
sustain positive value in the future. Increasing the dividend would
help amend these problems.
Apple does not have to worry about affording this increased
dividend either. Doubling the payout ratio to 42% would pose few
issues to the company's balance sheet because they have enough cash
on the books to make it work. As of its 2012 financial reports, the
company had $101 billion in retained earnings - enough to pay this
new dividend for over five years, even if the company made zero
money during that period. Obviously, Apple does not to worry about
not making money over this time period; analysts expect Apple to
make $47 billion in profit in 2013, and $55 billion in 2014.
How High Can its Dividend Go?
Why stop at doubling Apple's dividend? If the company wants to
truly make the transition into a shareholder-focused entity, it
could increase its dividend payout ratio to 50%, 60%, or even 70%.
The money Apple currently has stagnating in foreign accounts does
nothing to add value to the company or help its shareholders.
An increase in dividends also steers the company away from
unnecessary reinvestment and capital expansion in an increasingly
competitive market. Apple has thus far avoided any disastrous
acquisitions (think Yahoo! buying Broadcast.com, or any recent
Yahoo! acquisition for that matter), but a dedication to strong
dividend raises could help keep management from making any foolish
choices in the future.
Prediction: if Apple increased its dividend payout to a yield
level of 6% yield or higher, it may very well become the favorite
choice for both income investors
growth investors. Who wouldn't want to own a piece of the largest
company in the country (in terms of market cap) that offers a yield
most stocks can only dream of?
The Bottom Line
Apple's share price could be buoyed and bolstered almost
instantly with a much higher dividend payout. This potential
increase in income for investors will bring a slew of new buyers.
The company can afford it. People want it. It makes sense. Why not
just do it?
Apple, Inc. (
) is not recommended at this time, holding a Dividend.com DARS™
Rating of 3.4 out of 5 stars.
Be sure to visit our complete recommended list of the
Best Dividend Stocks
, as well as a detailed explanation of
our ratings system here