Quora Answer: Will Apple Increase Their Quarterly Dividend to Prop the Stock Price?

The following is my answer to a Quora question: “Will Apple (APPL) start to increase their quarterly dividend to prop up the stock price as their cash balance is astounding?”

Let us consider the numbers, which are easily available to anyone online, if we know where to search.  We know, for a fact, that Apple has consistently returned capital to shareholders with seven consecutive years of dividend increases, despite stock buy backs.  In 2018, it boosted its dividend by 16%.  The last increase in dividend was May 2018, and the payout ratio was 25% of earnings.  Since 2012, the yield has been consistent, at 2%, and the payout on earnings was between 25 to 30%.  We can see, from the numbers, that the pace of dividend increase was in line with the upward trend of the stock, at around 12% on average.  The last dividend boost of 16% was because of anticipated earnings gains due to tax reforms in the US.

Understandably, there is concern in the market when Apple CEO, Timothy Donald Cook, said that revenues would fall year on year to around US$84 million.  What is not understandable is the panic in the market.  This is another case of overreaction.  The China market is slowing, but it has less to do with the trade dispute with the US, and more to do with a general market slowdown due to global and domestic factors.  Apple must also be cognisant with the fact that they are overpriced in a saturated market, with Oppo and Huawei coming up with viable alternatives at half to a third the cost.  Apple is also guilty of cannibalising their own market due to a botched roll out of models.  Finally, the smart phone market is nearing maturity, meaning that growth cannot possibly be as fast as previous years.

Despite all that, Apple did make a significant gains. It is still expected to achieve a record earning result on a per share basis.  Analysts had overstated their expectation of Apple’s projected performance and panicked over an over-optimistic guess.  Apple still outperformed the market.

Secondly, we have to remember that Apple’s stock buyback remains strong, maintaining the share value.  This relatively poor growth has not affected Apple’s cash flow and their liquidity.  Also, as seen above, their low payout ratio relative to the market gives them room to manoeuvre.  Apple can boost dividends if their revenue falls, leading to slower profit growth to maintain their value in the market.  Also, because Apple has been aggressively buying back their stock, it can definitely afford to increase its per share payout without significant impact to their balance sheet.  Much of that money flows from one end of the sheet to the other.

Comparing their quarterly reports, Apple had 5.2 billion shares outstanding when it raised its dividend per share to US$0.63 in 2017.  In its most recent quarter, it stands at around 4.6 billion shares, and by the time profit share is stated, it will likely be lesser still.  That is a 12% drop in outstanding shares.  A higher per-share dividend payment costs much less than expected.

Analysis across the market, and there are several dozen in any Google search, is that to maintain that 12% pattern since 2012, it would be reasonable to expect a payout of just under a dollar per share.  It is extremely unlikely that Apple will not payout because they need to maintain investor confidence in the stock, which helps them maintain the stock value.  This is moreso important in a challenging environment.  This is one of the reasons why they built that war chest.