Over the past five years, the Apple dividend yield has quietly become one of the best reasons to own the stock.
However, the Apple dividend yield hasn't gotten much attention because it has never gone much higher than 2% since Apple Inc. (Nasdaq: AAPL) brought it back in 2012.
And with Apple stock trading near all-time highs at $156.42, the current AAPL dividend yield is just 1.62% despite last week's 10.5% boost. It's still short of the Standard & Poor's 500 average yield of 1.94%.
But, as with many things Apple, appearances can be deceiving. For example, the annual Apple stock dividend payout of $13.22 billion is now the highest in the world, surpassing the $12.77 billion of Exxon Mobil Corp. (NYSE: XOM).
And while Apple has raised its dividend every year since 2012, the Apple stock price has simply outpaced the rate hikes. Yield decreases as a stock price rises, and AAPL stock is up nearly 90% over the past five years.
The modest Apple dividend yield has disguised just how much value the Apple dividend has added for those who hold AAPL stock. While the stock alone is up just over 100% over the past five years, the total return – which includes the dividend payments – is nearly 170%.
As impressive as that is, it merely foreshadows what Apple investors can expect in the future.
That's because even though it's the biggest on the planet by dollar value, Apple's dividend has tons of headroom…
Why the Apple Dividend Yield Has a Lot of Room to Grow
The 10.5% Apple stock dividend increase brings it to $0.63 a share per quarter, or $2.52 per share annually.
But because Apple is such a cash machine, that payout is far below what Apple can afford. The company's earnings per share are expected to be close to $9 for fiscal 2017 (which closes Sept. 30 for Apple).
That means Apple's payout ratio – the proportion of earnings paid out in dividends – is only 28.1%.
If you look at the table below of the 10 companies in the S&P 500 with the highest annual dividend payouts, you'll see that Apple stands apart from its peers in both categories.
|Company (Ticker)||Payout Ratio||Dividend Yield||Annual Dividend|
|Apple Inc. (Nasdaq: AAPL)||28.1%||1.65%||$13.22 billion|
|Exxon Mobil Corp. (NYSE: XOM)||78%||3.73%||$12.77 billion|
|Microsoft Corp. (Nasdaq: MSFT)||51.7%||2.27%||$12.06 billion|
|AT&T Inc. (NYSE: T)||67.1%||5.09%||$12.04 billion|
|Verizon Communications Inc. (NYSE: VZ)||60.9%||4.95%||$9.41 billion|
|Johnson & Johnson (NYSE: JNJ)||47.4%||2.73%||$9.12 billion|
|General Electric Co. (NYSE: GE)||58.9%||3.31%||$8.38 billion|
|Chevron Corp. (NYSE: CVX)||95.4%||4.06%||$8.18 billion|
|Pfizer Inc. (NYSE: PFE)||50%||3.82%||$7.62 billion|
|JPMorgan Chase & Co. (NYSE: JPM)||30%||2.30%||$7.14 billion|
The 10 Largest Annual Dividends in the S&P 500
Most of the other top dividend-paying companies have payout ratios in the 50% to 60% range, almost twice Apple's. In other words, the Apple stock dividend could double and still leave the company plenty of room for future increases.
Since 2012, Apple has raised its dividend each year. But more importantly, the company has promised to continue doing so – most recently in Apple's Q2 earnings conference call last week.
Income investors love stocks that consistently raise dividends every year, which will broaden Apple's appeal even further.
And given what we know about Apple's business and commitment to returning cash to shareholders, the only questions about future Apple stock dividends are how large they'll be and how much they'll amplify total returns.
In addition to the low payout ratio, here are three reasons growth of the Apple stock dividend will accelerate in the years ahead…