What You Need to Know About Apple's Capital Return Program

If you're an Apple (NASDAQ: AAPL) shareholder or are thinking of becoming one, then it's probably a good idea to have some understanding of the company's capital allocation policy. Apple generates a lot of free cash flow, and it's not shy about putting that cash into its investors' pockets through its share repurchase program, as well as its significant and growing dividend.

Here are the key elements of Apple's capital allocation policy that investors should know.

Apple's dividend policy

As of today, Apple's quarterly dividend sits at $0.73 per share, whichadds up to $2.92 per share annually. At current share prices, that translates into a dividend yield of around 1.73%. This isn't the biggest yield that you can get from a tech company -- there are some great ones whose stocks yield more than 4% -- but it's better than nothing, and the company has been raising its payout at least once a year since 2012.

Also, keep in mind that while Apple seems committed to paying dividends, CFO Luca Maestri was quite candid on the fiscal second-quarter earnings call (the company generally announces its capital return updates around that time each year) that dividends play second fiddle to share buybacks.

Said Maestri:

So, while investors can rely on Apple delivering annual payout increases (after all, Apple probably wants to keep its dividend growth investors happy), keep in mind that paying the biggest dividend it possibly can doesn't seem to be on the agenda. (If Apple were interested in maximizing its dividend, it could easily pay out a lot more than it currently does.)

The buyback

As the preceding discussion indicates, Apple's capital return policy is heavily focused on its share repurchase program. Over the years, Apple has bought back a lot of stock and has, as a result, drastically reduced its share count:

The reduction in share count is a good thing for shareholders because it means that the company's net income is split among fewer shares, boosting earnings per share (EPS).

The company said in its most recent quarterly filing that, as of Sept. 29, 2018, it had used $29 billion of the $100 billion repurchase authorization announced on May 1, 2018. This means that it can still buy back about $71 billion worth of shares under its current program.

For some perspective, Apple's current market capitalization stands at around $800 billion, based on the stock's most recent closing price of $168.49 and the company's reported outstanding share count as of Oct. 26, 2018. This means that with what's remaining on the current repurchase authorization alone, Apple can buy back nearly 9% of its shares outstanding. (That percentage would've been lower before the recent steep stock price decline.)

Investor takeaway

Apple has a solid capital return program in place that ultimately does right by its shareholders. It has a respectable and growing dividend, and an aggressive stock buy-back program, which should ultimately help boost its EPS.

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Ashraf Eassa has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.