Despite reports that sales of Apple’s (Nasdaq: AAPL) iPhone 8 aren’t the monster that investors were hoping for, the company remains a technology, consumer products and stock market powerhouse.
Though it is not known as an income stock, Apple has consistently paid and raised its dividend for the past five years.
A bear market or a decline in price due to disappointing sales could turn Apple into an attractive stock from a dividend perspective.
But before we can dream about owning Apple in a portfolio of Perpetual Dividend Raisers, we need to know if the dividend is safe.
Apple has a lot of cash. And I mean A LOT OF CASH.
As of July 1, Apple had nearly $77 billion in cash on its balance sheet. When you include cash held offshore, that number balloons to an estimated $246 billion – almost a quarter of a trillion dollars.
It is estimated that Apple will pay out a little more than $13 billion in dividends in 2017 and almost $14.5 billion in 2018.
Let’s assume that Apple’s business went down the toilet and the company didn’t generate one dollar in cash flow.
It could still pay the dividend for five years based on its balance sheet figure and for 16 years if you include all of its foreign-held cash.
Admittedly, using its foreign-held cash for dividends isn’t going to happen unless those funds are repatriated and the company issues a special dividend. It’s just a silly example to emphasize how much cash Apple has and how it could fund its dividend if it wanted to, even if business fell off a cliff.
Despite lackluster iPhone 8 sales, the company still generates plenty of cash flow.
In fiscal year 2017, which ended September 30, Apple is forecast to have $53.3 billion in free cash flow, giving it a low payout ratio of 25%. The payout ratio is the percentage of earnings or cash flow that is paid out in dividends. I usually want to see a payout ratio of 75% or lower to ensure the company can continue to pay its dividend, even if it hits a tough year or two.
Next year, cash flow is projected to soar to $64.5 billion. That will make the payout ratio even lower at 23%, despite paying shareholders another $1.1 billion in dividends in fiscal year 2018…
It’s hard to imagine a situation where Apple would cut its dividend anytime in the near future.
This is probably as safe a dividend as I’ve seen in the nearly five years I’ve been writing this column.
Dividend Safety Rating: A
Good investing,
Marc
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Source: Wealthy Retirement