A recent article in the Motley Fool pointed out that “Apple’s annual payout is higher than the currentmarket cap of 176 of the S&P’s 500 components.” Well, the icing on the cake of any dividend stock is of course a dividend increase. We ran the CapitalCube screener to see some of the companies that might be justified in increasing dividends and the list surprised even us! In addition to Apple Inc. (NASDAQ:AAPL) companies like Microsoft Corporation (NASDAQ:MSFT) and Monsanto Co. (NYSE:MON) were begging for a closer look.

Apple

Could a Dividend Increase by Apple Inc. (NASDAQ:AAPL) be justified?

To check for the likelihood of a dividend increase at Apple Inc. (NASDAQ:AAPL), we look for outperformance relative to its peers (scroll down to the end for the peer list we used) in terms of pre-tax margin and operating cash flow. In addition, we also filter for relatively low leverage and good liquidity, which indicates sufficient support for debt servicing. We also look for a price to book value (P/B) that is positive, relatively low growth expectations (based on P/E) and a share price that has underperformed its peers. Overall, these conditions suggest that there is pressure on management to return money to the shareholders in the form of a dividend in order to increase their total returns. Finally, we overlay the dividend quality(medium or high) and ending cash dividend coverage (moderate or strong) to indicate whether the company is likely to increase its dividend.

Is a Share Buyback justified for Apple Inc. (NASDAQ:AAPL)? 

Find out with this Free Report!

Dividend Increase/Initiate Conditions AAPL-US Comparable Pass/Fail
Dividend payout <= 100% (= 0% for initiate) 27.5 100 Pass
Pre-tax margin >= 1.2 x Peer median* 30.1 20.1 Pass
Free cash flow (% revenue) >= 1.2 x Peer median* 25.5 22.7 Pass
Interest coverage >= 2.5x 933.4 2.5 Pass
Debt to market equity <= 1.2 x Peer median* 4.7 13.3 Pass
% below 52-week high share price >= 1.2 x Peer median* 34.0 16.0 Pass
Price to earnings (P/E) <= 1.2 x Peer median* 11.6 14.8 Pass
Price to book (P/B) >= 0 3.4 0 Pass
Dividend quality = Medium or High High Medium or High Pass
Ending cash/dividend >= 3 (Strong) or 1 (Moderate) Strong Strong or Moderate Pass
* We use a 20% tolerance (0.8-1.2x) around the median.  

 

Fundamentals support a dividend increase

Apple Inc. (NASDAQ:AAPL)’s margins and cash flow are good compared to its peers. In addition, the company’s leverage and liquidity ratio suggest the company can easily service its current debt. These factors, along with the company’s relatively low growth expectations and weak share price performance, indicate that the company is in a position to increase its dividend. The high quality dividend and a strong cash cushion (a healthy 4.1x the cash dividend) also seem to support a dividend increase.

Apple Inc. (NASDAQ:AAPL) Dividend Support from Operations. Dividend Increase Likely?

Is a Share Buyback justified for Apple Inc. (NASDAQ:AAPL)?

Find out with this Free Report!

Peer set for Apple Inc. (NASDAQ:AAPL)

The following peers were used in this analysis: Google Inc. Cl A (NASDAQ:GOOG), Microsoft Corp.(NASDAQ:MSFT), Samsung Electronics Co. Ltd.(KOREA:005930), Intel Corp. (NASDAQ: INTC), EMC Corp.(NYSE:EMC), Hewlett-Packard Co. (NYSE:HPQ), Dell Inc. (NASDAQ:DELL), Nokia Corp. (ADR)(NYSE:NOK).

This article was first published on the CapitalCube Blog, full disclaimer.