When it comes to announcements from Apple Inc. (AAPL), the ones that usually excite investors have to do with new products, updates and blowout earnings. Apple revealing a ritzy new iPad or iPhone or quarterly results that knock the cover off the ball are catalysts that have been known to send investors swooning.
But there’s another catalyst to consider: Apple’s dividend. Like many technology companies, Apple is relatively new to the dividend game. The notion of Apple paying out a dividend didn’t seem remotely fathomable under the late, great Steve Jobs.
Aside from the paltry payouts in the 1990s, Apple broke the double-digit mark in 2012 at 37.8 cents a share per quarter.
By last year, the Apple dividend jumped to 52 cents a share, representing dividend growth of over 27% in four years. Not too shabby; nor is the trailing 12-month dividend yield of 1.9%, which is nearly 20 basis points better than what investors will find on 10-year Treasurys.
Importantly, not only has Apple pledged to continue growing its payout, but the Apple dividend will not be a burden to the company, ensuring that dividend growth is something investors can count. In the last quarter of 2014, the company spent just 12.5% of free cash flow covering its dividend. And do not forget that Apple is sitting on one of the largest cash piles of any company in the U.S., with about $216 billion in cash and related fare on its balance sheet.
Some analysts believe Apple’s next dividend hike, which is expected to come sometime in the current quarter, could be in the area of 10% to 15% to bring the yield north of 2%.
Investors looking to play Apple’s rising dividend with exchange-traded funds need to be choosy, but there are some valid options, including the following ETFs.
Apple Dividend Plays: First Trust Nasdaq Technology Dividend Index Fund (TDIV)
AAPL Weighting: 8.4%
Expenses: 0.5%, or $50 for every $10,000
When considering that concept of dividends coming from the technology sector is still relatively new, the First Trust Nasdaq Technology Dividend Index Fund (TDIV) is an ETF that makes a lot of sense. Few traditional dividend ETFs offer robust exposure to tech stocks, because many of these funds require member companies to have a minimum dividend increase measured in years.
Usually, that requirement is at least 10 years, sometimes longer, keeping many well-known tech dividend names out of traditional dividend ETFs. TDIV fills that void by focusing only on tech and telecom stocks. Telecom names can account for up to 20% of the ETF’s weight.
As for being a play on Apple dividend growth, TDIV has credibility there as well. Apple is the ETF’s second-largest holding at a weight of almost 8.4%. Microsoft Corporation (MSFT), another impressive tech dividend grower, also accounts for over 8% of TDIV’s weight.
TDIV’s 94 holdings must have paid a cash dividend in the past year and must yield at least half a percent. TDIV charges 0.5% per year, or $50 for every $10,000 invested.
Apple Dividend Plays: iShares Dow Jones US Technology (ETF) (IYW)
AAPL Weighting: 17.6%
For the investor looking to access AAPL’s dividend via an ETF without the commitment of single stock ownership, the iShares Dow Jones US Technology (ETF) (IYW) is among the best bets. Of the nearly 100 ETFs that own shares of Apple, IYW’s 17.6% weighting is one of the largest weights to the iPad maker.
While an adequate proxy for direct ownership of Apple, IYW should not be confused with being a dividend ETF. As a tech sector fund, it includes stocks, such as Facebook Inc (FB) and Alphabet Inc (GOOG, GOOGL) that do not pay dividends. That keeps a lid on IYW’s income-generating potential as highlighted by the ETF’s trailing 12-month yield of just 1.2%.
Of IYW’s top 10 holdings, including Apple and Microsoft, seven are dividend payers and at least six have recently displayed impressive payout growth. Home to 141 stocks, IYW charges 0.44% a year.
Apple Dividend Plays: iShares Morningstar Large Growth ETF (JKE)
AAPL Weighting: 10.6%
Considering that the iShares Morningstar Large-Cap Growth ETF (JKE) is home to over $818 million in assets under management and an Apple weight of nearly 11%, one of the largest AAPL weights among ETFs, this fund flies under the radar.
Although JKE is a growth ETF, its top 10 holdings, which include AAPL, FB and GOOG, make the fund look like a tech fund in disguise. Tech and consumer discretionary stocks combine for over 61% of the ETF’s weight, which is notable because those sectors have been significant contributors to S&P 500 dividend growth in recent years.
Still, as a growth fund yielding just over 1%, JKE’s yield is not notable. Even a major Apple dividend hike will not do much to change that, but including AAPL, six of JKE’s top 10 holdings have grown payouts at sharp clips over the past few years.
JKE’s underlying index, the Morningstar Large Growth Index, “measures the performance of large-cap stocks that are expected to grow at a faster pace than the rest of the market as measured by forward earnings, historical earnings, book value, cash flow and sales,” according to Morningstar.
JKE charges 0.25% per a year.
As of this writing, Todd Shriber did not own any of the aforementioned securities.