Apple To Bolster Dividends And Stock Buybacks Again

Trade Algo predicts that Apple AAPL +0.72% will raise its dividend and expand its share repurchase program when it reports earnings late this month.

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The company has historically used its March earnings announcement, which is accompanied by an update on how it is managing its capital to give investors an update on their capital return policy over the last 10 years.

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The company has been aggressively returning cash to shareholders for years now, mainly through stock repurchases, but also through gradually increasing dividends, as well as having aggressively increased cash return to shareholders.

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Currently, Apple pays a quarterly dividend of 23 cents for each share, which is a yield of 0.6%. Last year, they increased the dividend rate by a penny, which would mean a 6% increase, compared to a 7% increase the year before. There seems to be a fair possibility that this year Apple will raise the rate one more penny, which would be 4%, to 24 cents quarterly, however a 2-cent increase, or a little under 9%, would bring the annualized rate to a nice dollar round number.

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Despite the fact that Apple's stock-repurchase program is quite interesting—and more importantly financially impactful—the stock-repurchase program is still going strong. Apple's board approved a buyback authorization of $90 billion last year, matching the buyback authorization from the previous year. A total of $405 billion has been spent on stock buybacks in the last five years. On a split-adjusted basis, the company has repurchased approximately 4.7 billion shares since the end of fiscal 2017, a 23% reduction in share count.

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According to the Chief Financial Officer of Apple, Luca Maestri, in Apple's earnings conference call, that was held in February of 2018 the company has announced that it is on its way to reach a position where the company has no cash. At that point, Apple had $285.1 billion in cash and marketable securities, and $163 billion in net cash.

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The company has been making considerable progress to reach its goal, gradually decreasing the amount of cash it has on hand on both a gross and net basis.

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Apple had a cash and marketable security balance of $165 billion at the end of the December quarter, and a net cash balance of $54 billion. In other words, it has nearly reached its net cash zero goal. For the last 16 quarters, Apple has purchased at least $16 billion worth of stock, including $19 billion in the quarter that ended on December 31st.

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You should keep in mind that the totals organically would keep rising—Apple continues to generate a tremendous amount of cash, with operating cash flow of $34 billion last quarter. In spite of this, Apple maintains a belief that there is a greater amount of cash on its balance sheet than it actually needs to operate its business and develop new products. As a result of the company's history of never making large acquisitions, excess cash should be returned to shareholders as the most obvious way to use it.

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It will be interesting to see what happens with Apple's stock buybacks once it reaches a cash-neutral position, a question that is still a couple of years away from now. It is likely that the company will continue to repurchase shares in the future—but at some point, the pace may slow, and eventually this can have a negative effect on the stock price.