Apple (AAPL) Could Double Its Dividend in Three Years; Here's How...

November 8, 2012 9:50 AM EST
Apple (Nasdaq: AAPL) is looking crispy Thursday morning amid speculation that the Company may move to increase its payout... and soon.

According to Barron's, those looking for quick gains might want to stay away; Apple is shifting into a new mode now, more income focused. The company announced a quarterly dividend of $2.65 per share over the summer, yielding 1.7 percent at the time. However, the recent dip in Apple stock has caused that yield to rise slightly, now at about 1.9 percent annually.

For investors who have seen Apple stock rise from $425 at the start of 2012 up to a high over $700, the 2 percent yield seems like a kick in the pants. Barron's cites examples like a U.S. Treasury note and the S&P 500 index, which yield 1.6 percent and 2 percent, respectively. Apple investors don't want returns that are flat with government bonds.

Barron's cites three reasons why Apple investors are likely to see the dividend double within three years, while total yield also rises:

1. Bond yields are at historical lows, meaning investors are clamoring for companies which are stable and dividend rich. Corporations, in turn, want their stock price to rise and are likely to pay out more to do so.

2. Peers like Microsoft (Nasdaq: MSFT) and Cisco (Nasdaq: CSCO) are paying out 32 percent and 29 percent of projected earnings, respectively. Apple's dividend is only about 20 percent of projected earnings.

3. Apple's growth may be slowing, but, like China, is definitely not slow in the broader spectrum. Analysts see Apple's earnings rising 15 percent or more in the next fiscal year, which is growth that is more than twice as fast as Microsoft and Cisco. Apple has about $128 per share of cash overseas and analysts see the company adding about another $175 per share in cash over the next three years.

Some risks include recent manufacturing issues related to Apple technology outpacing manufacturers capabilities, as well as increasing competition in the tablet and smartphone market.

But, Barron's thinks investors getting in now might be able to do so on the cheap and enjoy a 4 percent yield now, while shares regain footing and ramp higher.

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