Over the past year, Apple (NASDAQ:AAPL) has successfully regained its perch as the most valuable stock in the world. With a market capitalization above $1 trillion, the iPhone maker has managed to reinvigorate its core product line while also expanding into new areas like wearables and service offerings.

Apple’s products are so popular that the tech giant generates truly astounding amounts of cash flow.

Tax reform in late 2017 toppled the last barriers standing in the way of the company returning capital to shareholders, and Apple has aggressively boosted its dividend in recent years — 2019 marked the eighth straight year for a higher dividend from Apple.

Some investors, however, weren’t entirely satisfied with the size of that increase and wondered whether they can count on the company to keep its streak alive in 2020.

Below, we’ll look more closely at Apple’s dividend prospects in the coming year.

Dividend stats on Apple

A newcomer to dividends
Given the billions of dollars that Apple now pays to shareholders annually, it might seem surprising to learn that the company didn’t even pay a dividend for decades. During the tech boom of the mid-1990s, Apple discontinued its modest initial payout, and shareholders had to deal with having no income from their Apple stock until the early 2010s.

At that point, though, Apple made up for lost time by implementing a dividend in 2012. With a payout of roughly 30% of earnings, Apple paid a 2% dividend yield.

IMAGE SOURCE: APPLE.

Investors in Apple currently have to settle for a yield of just 1.2%, but it’s hard to blame the company for that. The per-share payout has more than doubled in seven years, but the gain in the stock price has greatly surpassed the dividend growth rate.

Until 2019, most of Apple’s dividend increases amounted to about 10%. In 2018, a 16% dividend hike followed favorable changes in tax laws, giving shareholders even more confidence in the income Apple stock could give them.

AAPL DIVIDEND DATA BY YCHARTS.

What’s next for Apple?
Yet in 2019, Apple disappointed some dividend investors. A smaller increase of just 5% raised some concerns about whether the pace of dividend growth would slow permanently.

Some noted, however, that the move came in conjunction with a broader plan for returning capital to shareholders. Apple authorized an additional $75 billion in stock buybacks at the same time that it boosted its dividend, and CFO Luca Maestri repeated Apple’s commitment to move toward a cash-flow neutral stance in determining its capital-return policy.

Meanwhile, confidence in Apple’s business has helped send the stock to all-time highs recently. The recent release of the iPhone 11 has gone relatively well, and moves to emphasize the company’s services offerings are gaining momentum. Other product lines, such as the Apple Watch and AirPods wearable devices, have seen surges in demand recently, helping to create new growth opportunities for the tech giant. If those parts of Apple’s business remain healthy, they could drive the cash flow necessary for future dividend increases.

Expect a higher dividend from Apple in 2020
Apple has committed itself to rewarding shareholders with returns of capital, and dividends have become a key part of the company’s capital-allocation strategy. Given Apple’s recent success, investors should expect dividend growth to return to around 10%, suggesting a boost to around $0.85 per share that would likely come in the spring.

That won’t do much to increase Apple’s yield, but it will give dividend investors the confidence that they’ll continue to participate in the company’s growth.

— Dan Caplinger

Where to Invest $99 [sponsor]
Motley Fool Stock Advisor's average stock pick is up over 350%*, beating the market by an incredible 4-1 margin. Here’s what you get if you join up with us today: Two new stock recommendations each month. A short list of Best Buys Now. Stocks we feel present the most timely buying opportunity, so you know what to focus on today. There's so much more, including a membership-fee-back guarantee. New members can join today for only $99/year.

Source: The Motley Fool