Over the past six months, many companies have reduced or suspended dividends to save money throughout the COVID-19 pandemic. As these streams of passive income dried up, investors in companies like Apple were likely to be lucky as long as the stocks maintained their existing dividend payments.
“However,” technology and consumer goods specialist Leo Sun, “there are still many cash-rich companies that can easily afford to double their existing dividends without missing out on anything.”
Leo Sun for The Motley Fool:
Apple reintroduced its long-suspended dividend back in 2012, and it then increased its payout every year. However, the stock’s multi-year rally reduced the forward rate from over 2% in 2016 to just 0.7% today.
The poor payout will not attract any serious income investors, but Apple has spent less than 20% of its free cash flow on dividends over the past 12 months – suggesting it can easily afford to double today’s returns.
In the long run, it must curb the long-term dependence on the iPhone as it expands into the next generation of hardware markets. This transition can be challenging, and investors are placing great faith in Apple, as the stock is trading at over 30 times future earnings. Therefore, Apple can reward patient investors for holding on while the valuation reduces 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 to be more interested in investing in buybacks over a larger dividend increase.