Is It Smart To Buy Apple Inc. (NASDAQ:AAPL) Before It Goes Ex-Dividend?

Readers hoping to buy Apple Inc. (NASDAQ:AAPL) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 7th of November to receive the dividend, which will be paid on the 14th of November.

Apple’s next dividend payment will be US$0.8 per share. Last year, in total, the company distributed US$3.1 to shareholders. Looking at the last 12 months of distributions, Apple has a trailing yield of approximately 1.2% on its current stock price of $255.82. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Apple has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Apple

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Apple paid out a comfortable 25% of its profit last year. A useful secondary check can be to evaluate whether Apple generated enough free cash flow to afford its dividend. It paid out 24% of its free cash flow as dividends last year, which is conservatively low.

It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.

Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.

NasdaqGS:AAPL Historical Dividend Yield, November 3rd 2019
NasdaqGS:AAPL Historical Dividend Yield, November 3rd 2019

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we’re glad to see Apple’s earnings per share have risen 13% per annum over the last five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination – plus the dividend can always be increased later.

The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. In the last eight years, Apple has lifted its dividend by approximately 9.3% a year on average. We’re glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Has Apple got what it takes to maintain its dividend payments? Apple has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Overall we think this is an attractive combination and worthy of further research.

Ever wonder what the future holds for Apple? See what the 36 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

If you’re in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.