Apple may stop being a top stock pick for dividend-focused investors. Bloomberg reports that the company has lost the advantage it once enjoyed over the S&P 500 in terms of dividends.
Why Apple shed its lead over the S&P 500
Last year after Apple (NASDAQ:AAPL) reinstated quarterly dividends, its stock yielded up to .67 percentage points more than the dividend yield of the full S&P 500 Index. However, the company has been slower to grow its dividend compared to the index. Apple increased the payout 7.9% this year, compared to last year’s 15% growth. Currently Apple’s dividend yield is at 1.97% with a payout of $1.88 annually. That’s only a few basis points ahead of the 1.91% yield recorded by the S&P 500.
This Tiger Cub Giant Is Betting On Banks And Tech Stocks In The Recovery
The first two months of the third quarter were the best months for D1 Capital Partners' public portfolio since inception, that's according to a copy of the firm's August update, which ValueWalk has been able to review. Q2 2020 hedge fund letters, conferences and more According to the update, D1's public portfolio returned 20.1% gross Read More
According to Bloomberg, the biggest reason Apple’s dominant position in dividend yields has reversed is because of the company’s stock performance. Since April 23, which was when Apple last announced a dividend increase and also the seven for one stock split, shares have moved 27% higher. Meanwhile the S&P 500 only increased by 4.7% in the same time frame.
Analysts and investors alike have been clamoring for Apple to enter a new product category. Most analysts agree that the company doesn’t really have room to grow without introducing some kind of new product or service that creates a significant opportunity for revenue growth.
Cisco Systems leads the way for large cap tech
A report on Seeking Alpha this morning indicates that Cisco Systems, Inc. (NASDAQ:CSCO) has taken over Apple’s once-dominant position in dividend yield. Just four years ago, the company didn’t pay out any dividends, but now, it has an annual yield of more than 3%. However, writer Bill Maurer doesn’t think that lead will last very long.
In 2012, Cisco even paid five quarterly dividends in an effort to assist shareholders with avoiding increasing taxes the next year. Cisco Systems really began returning quite a bit of cash flow to its shareholders, increasing the dividend by 75% in 2012. Now the company pays 19 cents per quarter or 76 cents per year.
Cisco Systems began increasing share buybacks, snapping up nearly $8 billion worth during the first three quarters of its current fiscal year. In the same year previously, the company bought back just $1.55 billion worth of stock. Going forward though, Maurer thinks Cisco will return its cash return focus to the dividend.
Currently Cisco Systems is one of four big names that pay dividends which are “sizeable,” he reports. Intel Corporation (NASDAQ:INTC) is in second place, while Microsoft Corporation (NASDAQ:MSFT) is in third and Apple has dropped down to fourth. Maurer predicts that Intel could increase its dividend soon because of signs that its turnaround is starting to take. He notes that Microsoft could also increase its dividend too, so either or both companies could overtake Cisco Systems.