February 27, 2013 at 04:00 AM EST
Buying Apple (AAPL) As A Dividend Play Before The Upcoming Dividend Increase?
Apple (AAPL) has been one of my favorite stocks for a long time and while yesterday it turned out to be a great pick, the company is struggling a bit more this year. Why? There are so many different reasons. But I’m starting to think that Apple could soon be added to the Ultimate Sustainable [...]

Apple (AAPL) has been one of my favorite stocks for a long time and while yesterday it turned out to be a great pick, the company is struggling a bit more this year. Why? There are so many different reasons. But I’m starting to think that Apple could soon be added to the Ultimate Sustainable Dividend Portfolio.

Apple Does Not Fit The “Typical” USDP Candidate

No doubt, in many ways, Apple would not fit in. Why?

-Dividend growth under 2.50%
-Basically no dividend history

I would argue that those should not be considered as much for Apple. Why? One important point is that Apple has just initiated its dividend and is likely to increase it significantly in the near future. Why?

-Cash Flow: Apple is generating billions of dollars every quarter and the dividend payments are a tiny part of those leaving a lot of room for increases

-Pressure: Apple is under a ton of pressure to better use its use cash reserves ($117B!) and the best way to get that done is to increase that quarterly dividend. Even if it increased by 20% or so, the yield would move past 3%

Just look at these numbers? I’d say that Apple could easily double its dividend and while I don’t expect that to happen, I do think the dividend will increase over time. Analysts currently expect Apple to increase its quarterly dividend to $3, an increase of 13%. Think the company can’t afford it? Actually, the last time Apple is not make over twice that amount in earnings per share was in 2010 (before the ipad).

AAPL EPS Diluted TTM Chart

AAPL EPS Diluted TTM data by YCharts

AAPL Dividend Chart

AAPL Dividend data by YCharts

You can also see some numbers for Apple:

TickerNamePriceEPSPE RatioPE Next YearReturn YTDSales GrowthAnalyst ratingBook ValueBetaRevenue/Share
AAPLApple Inc448.9744.6410.048.74-16.3244.584.53135.620.98167.42

Will Apple come up with other hits to keep it relevant? There are certainly rumors such as the iTV or the iWatch. I’d argue that even with its current line-up, paying and increasing its dividend in the long term should not be a problem. Yes, a bet on Apple is more risky than the typical dividend play but I would argue that it also adds a lot more upside.

What are your thoughts? Would you consider adding Apple to your dividend portfolio?

Disclaimer:  Long Apple (AAPL)

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